Breather for indebted consumer

Jo-Maré Duddy – Debt-ridden consumers, who owe commercial banks about N$62 billion, yesterday breathed a sigh of relief when the Bank of Namibia (BoN) said it decided to leave its repo rate unchanged.

The BoN’s monetary policy committee (MPC) opted not to follow the example of the South African Reserve Bank (SARB), which recently hiked its repo for the first time in three years and increased it by 25 basis points (bps). Both the BoN’s and SARB’s repo rates are now at 3.75%.

The BoN’s repo rate – the rate at which it lends to commercial banks – has been at 3.75% since August 2020. The MPC decided to keep the rate unchanged “to continue supporting the weak domestic economy that is still being weighed down by the Covid-19 pandemic,” BoN governor Johannes !Gawaxab said in a statement.

PRIME

The unchanged repo means that the prime-lending rate of commercial banks will remain 7.5%, while the interest rate on home loans will stay 8.5%.

The BoN’s latest data shows household mortgage debt at the end of October this year totalled nearly N$42.8 billion. Individuals owed banks nearly N$2.4 billion for overdrafts. Other loans and advances, which includes credit card debt, was more than N$9.9 billion.

Commenting on the BoN’s announcement, Simonis Storm (SS) said the central bank will likely increase its repo rate by between 50 and 100 bps by the end of next year.

“We do believe general interest rates on various debt instruments have bottomed. Based on our hike expectations, the prime rate and average interest rates on overdrafts will increase to between 8% and 8.25%, with average interest rates rising to 8.5% and 8.75% for car loans, and 8.6% and 8.85% for mortgages in 2022,” SS said.

RESERVE BANK

In the last five years, the Namibian repo rate deviated from the South African repo rate 29% of the time, SS said.

The longest period of deviation lasted 298 business days (22 May 2020 to 18 November 2021) and the average deviation period is about 104 business days.

“Indicating that some margin of variation is allowed in practice – as opposed to what standard economic theory would imply when a currency peg is enforced – we do expect a 25 bps difference at most between Namibia and South Africa’s repo rates throughout 2022 due to demand side inflationary pressures being more advanced in South Africa compared to Namibia,” the analysts said.

They continued: “For example, during the first two quarters of 2021, retail sales increased by 12.7% and 5% in South Africa and Namibia respectively, compared to the same period in 2020 (third quarter data for Namibia has not been released yet). Owing to higher demand side inflationary pressure, it is justified for SARB to hike more aggressively than BoN in 2022.”