BoN cuts interest rates

THE global economic storm has forced the Bank of Namibia (BoN) to throw consumers yet another lifeline – it is lowering rates by half a percentage point a month earlier than planned.

Wednesday’s extraordinary decision sees the repo drop to 7,5 per cent today, and means that commercial banks will soon decrease their prime lending and mortgage rates to 12,25 per cent. Or lower, if Governor Alweendo has his way.In his statement, the BoN Chief once again raps commercial banks over the knuckles for charging consumers too much interest.Alweendo told The Namibian on Tuesday that the current gap of 475 basis points between the repo and prime lending rates in Namibia is not justified when compared to similar economies.’In the past, the Executive Committee (EC) has expressed its concern about the magnitude of the spread between the repo rate and the prime lending rates of commercial banks. The BoN, therefore, expects that the commercial banks will use this opportunity to reduce the spread,’ the Governor’s statement the day after repeats.Alweendo told the paper that the BoN knows that it has no legal mandate to tell banks what their prime rate should be. However, the BoN believes it has a duty to promote an efficient banking sector, he said.Meanwhile, Bankers’ Association of Namibia (BAN) President Mpumzi Pupumba has indicated in an interview with The Namibian in Bottomline (page 17) today that the industry will meet with the BoN to discuss this thorny issue.The latest cut is the fourth one since December. Alweendo has slashed rates by three percentage points in total so far. This roughly adds up to a total saving of N$645 per month on a home loan of N$300 000, N$1 500 per month on a home loan of N$700 000 and N$2 145 on a loan of N$1 million.’We are experiencing unusual and uncertain economic times where, due to exogenous factors, economic conditions change rapidly,’ the Governor said in Wednesday’s rate announcement.Lower rates are necessary to support the local economy, he said. The BoN expects economic growth to trickle down to a mere 0,4 per cent this year, but several economists foresee even bleaker scenario of a recession.His decision is supported by healthy foreign reserves of N$15,9 billion at the end of April, which exceeds the official target significantly and is more than enough to sustain the currency peg and ensures price stability. Furthermore, the public’s appetite for credit remains under control at a level of ten per cent.Inflation has also eased up, with April’s figures showing a drop to ten per cent from 11,2 per cent the previous month.The BoN’s move to bring rate relief ahead of the scheduled monetary policy meeting of June 17 comes after South African Reserve Bank (SARB) Governor Tito Mboweni decided in March to review his rate policy on a monthly, rather than two-monthly, basis to monitor the effect of the world’s economic crisis on South Africa.At first, the BoN resisted following this example, only bringing its originally scheduled monetary policy meetings forward a fortnight. However, the BoN hinted last week that it might use the EC’s planned reserve review this week to also take a look at rates.jo-mare@namibian.com.na