COLD WINTER AHEAD

Interest rates are going up again, and more than 680 000 commercial bank clients with loans will be forced to look for an extra 50 cents per N$100, as interest rates reach an all time high since 2009.

These clients have borrowed over N$107 billion for homes, business properties, cars, equipment, overdrafts and personal loans.

A committee within the Bank of Namibia (BoN), as the deciding body on interest rates, met early this week and decided that the benchmark interest rate be increased by 50 basis points (bps) to 7,75%.

Announcing the decision, BoN governor Johannes !Gawaxab said increasing at that pace was the most cautious, as well as avoiding any dramatic shifts.

The central bank, since the beginning of 2022, has increased interest rates by a cumulative 400bps – and many Namibians have been scraping for additional funds to service their debts and still manage ever increasing food and fuel prices.

!Gawaxab, however, said this necessary evil, as his South African counterpart Lesetja Kganyago once called it, was to keep up with the fixed rate regime, which requires that Namibia cannot divert much from the interest rates in South Africa.

South Africa’s repo rate is at 8,25% – but other Common Monetary Area countries (Lesotho and Eswatini) are at the same level with Namibia at 7,75%.

At such a benchmark interest rate, which was effective at announcement, the prime lending rate is now at 11,50%, which !Gawaxab said was a fair shot to support domestic economic activity.

At this prime rate, the average home loan rate has now increased to 12,5% and the average car loan rate increases to 13,5%.

According to the governor, there was a member of the deciding committee that wanted the repo rate to be pushed to 8%, but the other four felt it was too much of a “dramatic” hike.

The committee of five also decided on the 50bps increase as an attempt to anchor inflation expectations and support the peg between the Namibia dollar and the South African rand, and had very little to do with taming inflation.

Inflation print for May was recorded to be at 6,3% – and the new interest rate has also put the real interest rate into a partly comfortable positive territory.

The pain that most normal Namibians feel is because they haven’t had any significant salary increments to counter inflation and the ever increasing interest rates.

Labour expert Herbert Jauch expressed concern over the recent increase in the repo rate, highlighting the continued burden it places on individuals repaying loans, particularly housing bonds.

Individuals have mortgage bonds worth N$43 billion and over N$7,1 billion worth has already fallen short in payments by over a month.

Jauch believes that this latest measure by the BoN further exacerbates the financial strain on already struggling households, with no apparent end in sight.

“An increase in the repo rate will increase the burden on all those who have to repay loans, especially housing bonds. It places more and more households into a financially impossible situation,” Jauch said.

This highlights an urgent need for relief, including a universal basic income grant, he said.

Meanwhile, economist Omu Kakujaha-Matundu has expressed his apprehension over the recent increase, and with limited support available to consumers and businesses, he warns of the possibility of increased repossessions and lay-offs if this trend persists.

“It goes against all logic to try and address a supply side problem with a demand management tool. It seems central banks have run out of options and they have no mercy for consumers and businesses, pounding them into poverty,” Kakujaha-Matundu said.

He said as the government struggles to provide comprehensive support, the nation braces itself for the painful repercussions of these repo rate hikes.

Oxford Economics analyst Gerrit van Rooyen said the hike was necessary to ensure that the Namibian repo rate does not deviate significantly from that of South Africa for extended periods.

“This is to avoid capital outflows to higher interest-bearing financial instruments in South Africa, which could jeopardise the one-to-one peg between the Namibia dollar and the rand,” he said.

This year alone, since Namibia has been behind the interest rate curve, over N$10,1 billion has already flowed to South Africa in search of better investment returns, !Gawaxab said, and it needs to be kept in check.

A monthly average of N$2 billion in investment outflows is too much for a small economy like Namibia, and that hike in the rates was necessary, and still places South Africa at an advantage for investments, said Old Mutual Namibia’s investment manager Tumelo Thudinyane.

Simonis Storm analyst Theo Klein said monetary policy is now in restrictive territory, and at the moment runs the risk of weighing on economic activity in Namibia, despite !Gawaxab’s note that it will support the economy.

Klein warns that although not yet felt, it is expected that further rate hikes during 2023 would add to the negative impacts of the hikes from 2022, and would weigh on economic activity in 2024.

Whether this is the end of the high interest rates, Klein said it is dependent on international markets.

“We expect the Fed to keep rates unchanged on 14 June. This could in all likelihood lead the SARB to keep rates unchanged in their July 2023 meeting. With that said, we then maintain our view that no further rate hikes in Namibia will take place for the remainder of 2023,” he said.

While the interest rates may be bad news for borrowers, the hikes are indeed good news for banking clients that have savings deposits in banks, as the average deposits rate has now boosted to a reasonable 5,2% as of April.

The next monetary policy announcement is slated for 16 August.
Email: lazarus@namibian.com.na
Twitter: @Lasarus_A

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