Christmas in October for consumers as rates fall

The Bank of Namibia (BoN) has cut the repo rate to 6.5%, offering relief to consumers and businesses through lower borrowing costs and potential economic stimulus.

This comes after the BoN reduced the interest rate from 6.75% to 6.50% yesterday.

Economist Omu Kakujaha-Matundu says consumers will pay less on their mortgage rates, and those thinking of buying new vehicles will borrow at lower interest rates.

“The reduction of the repo rate by 25 basis points is Christmas in October for consumers.

This means a breather for repayment on mortgage rates and borrowing at lower costs,” he says.

Similarly, businesses will save on servicing their debts and can plough the savings back into their operations.

“This could serve as an economic stimulus, contributing in a small way to employment creation,” Kakujaha-Matundu says.

Consumer analyst Salomo Iipinge says consumers could save a lot on transactions.

“One can save a lot, because when the rate goes up, all credit agreements or transactions go up as they are linked to the repo rate. It would fluctuate and increase as it increases.

“So as the interest rate reduces, a lot of expenses also reduce,” he says.

Iipinge says the repo rate may be reduced again in the future, considering it now stands at what it has been before and is supposed to be.

Economist Klaus Shade says the repo rate could boost economic growth and increase consumer demand as people would have more available income.

“With the extra margin, consumers could spend it on other items and benefits.

There are many economic reasons to support the cut and what we perhaps shouldn’t forget is that it also spreads between the repo rate and the prime rate that the commercial banks use when lending money to their customers,” he says.

The reduction of the repo rate followed the bank’s Monetary Policy Committee’s fifth bi-monthly meeting of 2025 on Monday and Tuesday.

Central bank governor Johannes !Gawaxab yesterday said to continue supporting the domestic economy while safeguarding the peg between the Namibia dollar and the South African rand, the committee decided to reduce the repo rate by 25 basis points to 6.50%.

He said domestic economic activity has weakened, and inflation remains subdued, while growth in private sector credit extension has improved further, although it remains relatively weak.

The merchandise trade deficit has narrowed further, while the stock of international reserves remain sufficient to maintain the currency peg and meet the country’s international financial obligations.

Consumer price inflation remained unchanged at 3.5% in September, relative to its level in July, although it temporarily dipped to 3.2% in August.

!Gawaxab said inflation projections for both 2025 and 2026 have been revised downward by 0.2 percentage points to 3.6% and 4%, respectively, compared to the previous forecast.

He said commercial banks are accordingly expected to cut their prime lending rates by the same margin to 10.125%.

EXPLAINER:

THE Bank of Namibia has announced a reduction in the repo rate by 25 basis points, from 6.75% to 6.5%.

This was announced by central bank governor Johannes !Gawaxab yesterday.

But what does this mean for your pocket?

Economist Klaus Shade explains:

If someone paid N$500 on a loan at the prime rate of 10.5% then the combined effect of the repo rate cut (25 basis points) and the cut in the spread between the repo rate and the prime rate (12.5 basis points) would amount to about N$18.00 in savings.

If someone pays N$5 000, then monthly savings would be N$180.

– Compiled by Andrew Kathindi

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