Interest rates up again

THE Bank of Namibia is increasing its repo rate – the lending rate to commercial banks – by 50 basis points to nine per cent today.

It is the fourth increase in interest rates in the last six months, bringing the total increase to two per cent. The BoN followed the South African Reserve Bank, which announced the increase earlier yesterday.”High consumer demand in South Africa exerts inflationary pressure originating from imported goods and this resulted in a deficit on the current account of South Africa’s balance of payments,” said Paul Hartmann, Deputy BoN Governor, yesterday.”This weakens the South African rand and consequently the Namibia dollar,” he added.According to Hartmann, inflation in Namibia reached 5,8 per cent last month, mainly due to food and fuel price increases.”This is however still within the target set in South Africa, which is between three and six per cent,” he said.Despite tentative signs of moderation in consumer demand, private-sector credit extension remains at high levels in South Africa, said Tito Mboweni, who heads the Reserve Bank in South Africa.”Growth in total loans and advances extended to the private sector has maintained a rate of around 26 per cent since August 2006,” he said.In Namibia it slowed down to 17,8 per cent, down from 20,4 per cent in 2005.Home loans remain the main source of credit growth.The higher rates of credit extension have contributed to the further increase in household indebtedness in South Africa, which in the third quarter of this year rose to 73 per cent of household disposable income.The food category remains the main inflation driver in both countries.Food price inflation increased from a year-on-year rate of 7,2 per cent in August 2006 to 7,9 per cent and 9,4 per cent in September and October respectively in South Africa.Meat prices increased at a year-on-year rate of almost 20 per cent in October, whilst the prices of fish and other seafood increased by 11 per cent.The next Monetary Policy Committee meeting of the South African Reserve Bank will be in mid-February next year.Financial experts predict that another interest rate hike might be on the cards.South African commercial banks had already raised their interest rates yesterday, and Namibian banks are expected to follow suit soon.The BoN followed the South African Reserve Bank, which announced the increase earlier yesterday.”High consumer demand in South Africa exerts inflationary pressure originating from imported goods and this resulted in a deficit on the current account of South Africa’s balance of payments,” said Paul Hartmann, Deputy BoN Governor, yesterday. “This weakens the South African rand and consequently the Namibia dollar,” he added.According to Hartmann, inflation in Namibia reached 5,8 per cent last month, mainly due to food and fuel price increases.”This is however still within the target set in South Africa, which is between three and six per cent,” he said.Despite tentative signs of moderation in consumer demand, private-sector credit extension remains at high levels in South Africa, said Tito Mboweni, who heads the Reserve Bank in South Africa.”Growth in total loans and advances extended to the private sector has maintained a rate of around 26 per cent since August 2006,” he said.In Namibia it slowed down to 17,8 per cent, down from 20,4 per cent in 2005.Home loans remain the main source of credit growth.The higher rates of credit extension have contributed to the further increase in household indebtedness in South Africa, which in the third quarter of this year rose to 73 per cent of household disposable income.The food category remains the main inflation driver in both countries.Food price inflation increased from a year-on-year rate of 7,2 per cent in August 2006 to 7,9 per cent and 9,4 per cent in September and October respectively in South Africa.Meat prices increased at a year-on-year rate of almost 20 per cent in October, whilst the prices of fish and other seafood increased by 11 per cent.The next Monetary Policy Committee meeting of the South African Reserve Bank will be in mid-February next year.Financial experts predict that another interest rate hike might be on the cards.South African commercial banks had already raised their interest rates yesterday, and Namibian banks are expected to follow suit soon.