BoN should have cut rates

THE weak domestic economy justified another rate cut this month and the only reason Bank of Namibia (BoN) Governor Tom Alweendo decided to keep the repo rate unchanged recently is probably because he wants to increase pressure on the commercial banks to narrow the interest rate spread.

‘We interpret the latest decision as an attempt by the BoN to turn the heat up on Namibia’s commercial banks and signal that the banks should lower the spread between the Namibian repo and the prime lending rate, which the Governor wants to see decline to 375 basis points,’ said Old Mutual Namibia Group Economist Robin Sherbourne.When he announced the unchanged repo of seven per cent on August 19, Governor Alweendo said he expected the four commercial banks – Nedbank Namibia, Standard Bank Namibia, FNB Namibia and Bank Windhoek – to nevertheless lower their prime lending rates.’I wish they would use this opportunity to further narrow the difference between the repo rate and prime interest rates,’ Alweendo said, referring to the current interest rate gap ranging from 425 to 450 basis points.He said the rate spread issue is still under discussion and that there is ‘somehow an understanding’ between the central bank and commercial banks that the big difference is ‘not justified’.However, not one of the four banks has reacted on the Governor’s call yet.Sherbourne said given the data coming out of the domestic economy, he wouldn’t be surprised to see the BoN cut the repo when its Executive Committee meets again on interest rates in October.’Rates have only fallen to a level last seen in 2006 despite a downturn which is extreme by historical standards,’ he said.Sherbourne said he was surprised by the BoN’s decision to keep the repo unchanged at the August meeting, ‘since we believed this to be a relatively clear cut case necessitating a further cut in the repo’. He expected a cut of at least 50 basis points.’With the exchange rate looking relatively firm, the inflation outlook benign, credit growth feeble and the domestic economy still so weak, there has rarely been a clearer case for cutting rates,’ he said.Sherbourne referred to the EC’s statement that ‘in the medium term, inflation should continue its downward trajectory mainly on account of a continuously slowing world economy’ and that ‘the general economic picture remains subdued’ in Namibia.’We wholeheartedly agree with the EC when it states that ‘it is still premature to make an assessment about the sustainability of the recovery in the world economy’ – the marginally positive growth in the second quarter recorded by France, Germany and Japan hardly constitute evidence of a global recovery, especially given that large parts of the world economy continue to be sustained by government and central bank life-support machines,’ Sherbourne said.However, he questions the BoN’s statement that Namibia’s mineral sector ‘witnesses a remarkable recovery during the second quarter of 2009’.’We believe there is little evidence for statements as bold as this,’ Sherbourne said.jo-mare@namibian.com.na

In an age of information overload, Sunrise is The Namibian’s morning briefing, delivered at 6h00 from Monday to Friday. It offers a curated rundown of the most important stories from the past 24 hours – occasionally with a light, witty touch. It’s an essential way to stay informed. Subscribe and join our newsletter community.

The Namibian uses AI tools to assist with improved quality, accuracy and efficiency, while maintaining editorial oversight and journalistic integrity.