Lower rates finally spark interest

CREDIT demand started picking up in April, a possible signal that that Namibians are finally responding to the Bank of Namibia (BoN) lower interest rate regime.

According to central bank figures, credit extended to the business sector in April rose by 12,2 per cent on an annual basis compared to 9,5 per cent in March. At the same time, credit extended to individuals increased by seven per cent, up from 6,1 per cent a month earlier.Traditionally it takes between 18 and 24 months for a rate cut cycle to take effect.’In April it was exactly 18 months since the BoN started to loosen monetary conditions,’ Bank Windhoek economist John Steytler said in his latest economic update.’If the typical cycle of monetary transmission holds for Namibia, then April could be the start of more robust credit conditions in Namibia,’ he said.BoN figures show that total private sector credit extension by banking institutions increased by 9,1 per cent on a yearly basis in April, after slowing somewhat during the previous two months. In February and March total credit extended to the private sector increased only moderately on an annual basis by 8,7 per cent and 7,0 per cent respectively.’This prompted some economic observers to express concern that credit demand appeared not to respond to relatively loose monetary policy that the BoN has been pursuing since the end of 2008,’ Steytler said. A drop in disposable income of households and individuals, as well as the relatively high debt of producers and consumers could explain the slow response in credit demand, he said.In real terms, credit given to the private sector in April in total rose by about 4,1 per cent, which, according to Steyler, is in line with the expected economic growth for 2010. In real terms, credit extended to the business sector grew at ‘quite a robust pace’ of 7,2 per cent in April, while the real increase in create extended to households was ‘more moderate’ at 2,5 per cent.Steytler said credit to the mortgage sector expanded at a ‘healthy rate’ of 10,4 per cent during April – up from 8,8 per cent in March.’The increase in the mortgage credit is in line with tentative signs of recovery in the property market,’ Steytler said.Instalment sales recovered ‘moderately’ by 4,4 per cent on an annual basis during from an annual growth of 2,1 per cent the previous month.’The bulk of instalment credit is earmarked for motor vehicle sales, and as there are signs of recovery in the market for new vehicles, this component of credit should continue to recover in the months ahead,’ Steytler said.