Repo Rate Hiked to Six Percent

THE Bank of Namibia yesterday increased the repo rate by 0,25 percentage points to 6%.

Governor Ipumbu Shiimi said the decision was taken to contain the g growth in household credit, which is largely financing unproductive imported luxury goods and putting additional pressure on the international reserves of the country.

He said domestic growth prospects continued to be encouraging with inflation remaining manageable. However, risks remain.

“g growth in household credit remains a concern, especially when used to finance unproductive imported luxury goods,” he said.

Available data shows that the domestic economy improved during the first half of 2014, driven mainly by construction, wholesale and retail trade, diamond mining, cereal production and the public sector. In contrast, activities such as uranium and zinc production performed poorly.

“Going forward, the domestic economy is expected to improve for the remainder of 2014, supported by construction activities and g domestic demand. The risk to growth remains the declining international commodity prices, due to depressed demand,” he said.

Inflation was 5,6% in July and is expected to average around 6% for 2014.

Credit to the private sector increased gly to an average growth rate of 15,3% during the first half of 2014, from 13,9% registered during the last six months of 2013. This g demand for credit came from both household and business sectors. The growth in household credit was mainly dominated by installment credit, overdrafts and other loans and aances.

During the first half of 2014, the trade deficit widened further as a result of the higher import bill. These imports consisted mainly of capital inputs, vehicles and other consumer goods.

“The Bank of Namibia remains concerned about the importation of unproductive goods, especially passenger vehicles and other luxury goods, which continue to exert pressure on the international reserves of the country,” Shiimi said.

The next monetary policy announcement will be made on 21 October.

“We view this move as positive from the perspective of the Namibian macro-economy, albeit bad for the individual consumer, and have been calling for higher rates for some time,” IJG Securities said in a commentary yesterday.

In January, IJG said it believed that 2014 may see the Namibian central bank taking the lead by making interest rate moves before South Africa.

Source : The Namibian