Inflation eroding real returns on investments

Inflationary pressure remains a worry to investors, consumers, and corporates. Inflations is eroding real returns on investments.On the other hand, subsequent interest rate increases will continue to encourage domestic investments in fixed income and money market instruments, according to the Agricultural bank of Namibia (Agribank).The Bank of Namibia (BoN) increased the repo rate by 250 basis points in 2022. The rate at which commercial banks borrow from the central bank currently stands at 6.25%, while the prime lending rate stands at 10%. Between January 2022 to September 2022, inflation in Namibia averaged 5.8%. In September 2022, inflation stood at 7.1%, according to the Namibia Statistics Agency (NSA).Central Bank governor Johannes !Gawaxab at the last monetary policy announcement stated that the monetary stance is necessary to narrow the current negative real interest rate.According to the latest BoN money and banking statistics, when the repo rate was at 5.50%, the average lending rate stood at 9.08%, while the average deposit rate stood at 4.04%.To get the real interest rate figures, subtract inflation from the lending and deposit rates.“For the last 3 years, real lending and deposit rates have been on a downward trajectory, lowering to 1.85% and -2.86% in September 2022,” Agribank pointed out.“With a continuous rise in inflation and derailed real returns on investments, we expect interest rates to continue on an upward trajectory over the medium term,” Agribank added.BondsAccording to Simonis Storm Fixed Income report, losses in African bonds have been significant in 2022, but losses in emerging market local currency bonds have been larger. The Bloomberg African Bond Index has decreased by 18.2% year to date, while the JP Morgan Emerging Market Total Return Index dropped 22.0% year to date and reached levels last seen in 2016.At the same time, the SS Namibia Government Bond Total Return Index (NGBTRI) increased by 6.3% year to date. The Bloomberg African Bond Index is a composite index of South Africa, Egypt, Nigeria, Kenya, Namibia, Botswana, Ghana, Zambia, Morocco and Mauritius local sovereign indices.Locally, bond yields have increased by 150 basis points on average in South Africa and 174 basis points in Namibia since the start of the year, with bonds on the short end of the yield curve experiencing the highest increases in yields, Simonis Storm added. Yields on the longer end of the curve have increased less considerably, leading to a flattening in the local yield curve.Inflation is expected to fall over the fourth quarter of 2022 and 2023, lessening the upward pressure on interest rates and bond yields. “Early indications show that inflation could have peaked in August 2022 and we forecast lower inflation for 2023 at 4.8% compared to 6.1% that we expect for 2022. We see the interest rate hiking cycle coming to an end in the first quarter of 2023 in the US, South Africa and Namibia,” Simonis Storm said.-phillep@nmh.com.na

Inflation eroding real returns on investments

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Republikein 2025-04-10

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Inflation eroding real returns on investments

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