Higher interest rates expected

Jo-Maré Duddy – Consumers should ready themselves for the possibility of higher interest rates this year, analysts warned yesterday.

Reacting to the Bank of Namibia’s (BoN) decision to once again leave its repo rate unchanged at 6.75%, half of analysts approached by Market Watch said they expect an increase in 2019. The BoN’s repo rate has been 6.75% since August 2017.

The primary mandate of Namibia’s central bank is to maintain the currency peg with the rand. This dictates that the BoN’s repo rate remains at least level with that of the South African Reserve Bank (SARB), although the bank has room to deviate to the upside, says Cirrus Capital economist Robert McGregor.

The BoN’s repo rate now is the same as that of the SARB. “It leaves us with no discretion should the SARB decide to hike rates – a likely outcome given current events in our neighbour to the south,” McGregor says. Cirrus therefore expects a repo rate hike in the “near term”, he says.

Simonis Storm (SS) analyst Indileni Nanghonga agrees. SS “best case scenario” is a possible increase of 25 basis points in the second half of this year.

McGregor says “inappropriately low interest rates during Namibia’s boom years mean that it has no buffer”.

“If interest rates had not been cut to the historic lows seen during Namibia’s high-growth period (as was done in South Africa which had a much weaker economy at the time), it would have left the BoN with a buffer during the current downturn and allowed rate cuts to relieve some pressure,” he says.

Status quo

IJG Securities expects the repo to remain at current levels for the entire 2019. However, “there is a relatively high probability that external shocks (Brexit, trade wars and the South African elections to name a few) could change this outlook,” says IJG research chief, Eric van Zyl.

The head of research at PSG Namibia, Eloise du Plessis, believes the repo rate won’t be changed this year. “A decrease in interest rates will make consumers very happy, but it isn’t optimal for Namibia’s reserves if our rates are below those of South Africa,” she says.

Du Plessis bases her forecast on the fact that the US Federal Reserve Bank has put a brake on increasing rates. Inflation is within acceptable levels and a stronger Namibian dollar should ensure this trend continues.

In addition, “the Namibian economy is still struggling unbelievably hard en will suffer even more should rates increase”, she says.

No surprise

Analysts expected the BoN to maintain the repo rate at 6.75% yesterday.

“In this stagnating economic environment distinguished by high unemployment, high household debt levels, contractions in consumer industries such as wholesale and retail trade and weak credit extension growth, one would expect the central bank avoid hiking when possible,” McGregor says.

“Inflation remains well within target ranges in both Namibia and South Africa after a drop in oil prices late last year as well as currency strength, simplifying the interest rate decision somewhat,” according to Van Zyl.

Namibia’s International reserve position improved in December after the African Development Bank (AfDB) released the second tranche of general budget financing to the Namibian government, which had been delayed since August, he added.

The deputy governor of the BoN, Ebson Uanguta, yesterday said Namibia’s international reserves stood at N$30.7 billion at the end of last month.

“This amount of international reserves is estimated to cover 4.2 months of imports of goods and services. At this level, the reserves are sufficient to protect the peg of the Namibia dollar to the rand, and meet the country’s international financial obligations,” Uanguta said.