Namibians told to pay off loans while interest rates decrease

Namibians have been told to pay off loans and restructure their loan repayments while interest rates are declining.

This comes after the Bank of Namibia (BoN) yesterday announced that the repo rate will reduce from 7% to 6.75%.

Economist Josef Sheehama says now that interest rates are lowering, those in debt should prioritise paying them off before another rise.

“Now is a good time to think of what is known as consolidation or restructuring of loans for those with large amounts of debt,” he says.

He adds that for those seeking to buy a home, now will be a good time as the prime lending rate has also gone down.

The prime lending rate is the rate at which commercial banks loan out money to clients.

Additionally, consumers currently paying off home or car loans will have some disposable income as loan repayment amounts will reduce.

“Since the repo rate is tied to other interest rates, a drop in the repo rate will likely result in a drop in the interest you pay on your car or home as well as on saving and investment products,” says Sheehama.

However, although BoN decided to cut the repo rate due to lowering inflation, the price for goods and services remains high.

BoN governor Johannes !Gawaxab says an ideal situation will be to continue lowering the repo rate to help bring down prices as it creates an ideal environment for economic activity.

“The price level still remains high, although inflation is coming down. So, ideally we would want to bring down the repo rate to 6.50%,” he says.

According to !Gawaxab, the biggest slow down in price increases was recorded in the food and transport categories.

Currently, the country’s inflation is standing at 3.2%.

Economist Omu Kakujaha-Matundu says one of the ways to address the prices is to lower the cost of goods for many businesses.

“One way Namibia can lower prices meaningfully is to address the supply-side constraints. Some of these measures are to lower the price of energy and water, increase agricultural productivity, and decrease transportation costs,” says Kakujaha-Matundu.

Moreover, inflation lowering will not translate to low prices as businesses tend to be reluctant to reduce prices, even when market conditions suggest they should.

This is a term called ‘prices are sticky downwards’.

“Lowering the inflation rate means the rate of acceleration of prices is slowed, not that prices will go down,” says Kakujaha-Matundu.