Rising Interest Rate Cycle Expected to Be Moderate

PRUDENTIAL Namibia has launched a new fund called, Namibian Enhanced Income Fund.

The company expects interest rate to rise moderately.

Prudential said yesterday that it expects interest rates from money market funds and banking products to stay relatively low for an extended period.

With this in mind, Prudential has launched the unit trust fund aimed at beating the returns from these traditional cash products. The fund is also designed to protect investors’ capital and reduce risk.

Prudential is one of South Africa’s top 10 largest asset managers, with approximately N$175 billion in assets under management as of May. The company set up an office in Namibia in 1996.

“With interest rates from money market funds (at around 5,5%) lower than inflation (at 5,9%), investors in these products are in real danger of having the purchasing power of their hard earned savings eroded,” said Prudential Namibia MD, Ben Bertolini,

According to the Association of Unit Trusts of Namibia (AUTN), 66% of retail funds are invested in fixed interest products, of which the bulk are money market funds equating to N$24 billion.

Bertolini said Prudential believes that even though interest rates are now in a rising cycle, that cycle is likely to be moderate and very gradual in terms of rate hikes resulting interest rates remaining lower for longer.

The Prudential Fund invests across a wide range of assets like cash, government and corporate bonds, floating-rate notes, international bonds, listed property and a limited amount of equities with the aim of generating ‘enhanced’ income for investors.

RISING CYCLE

Last week, the central bank increased the repo rate by 0,25 percentage points to 5,75%, governor Ipumbu Shiimi said in Windhoek.

The reasons for the increase were that international commodity prices are declining, inflation has shown an upward trend in recent months and the domestic private sector credit has been increasing since December 2013.

Shiimi said the rapid growth in imports of vehicles, partly financed by installment credit, remains a concern. This has put pressure on the international reserves of the country and requires monitoring, he said.

Inflation is expected to average 6% this year. Inflation has shown an upward trend for the past five months. Annual inflation rose from 4,9% in December 2013 to 6,1% in May, mainly due to increases in food and transport prices.

FNB Namibia changed its lending rates after the repo rate cut. The new prime rate is 9,50% and the home loan rate 10,50%.

Nedbank also increased its prime lending rate from 9,25% to 9,50%. The residential home loan rate was adjusted upwards with 25 basis points to 10,50%.

Bank Windhoek also increased its prime lending rate by 0,25% from 9,25% to 9,50% and its mortgage lending rate from 10,25% to 10,50%.

Source : The Namibian