Rate relief unlikely, say economists

NO interest rate surprises are expected this morning, with economists believing that Bank of Namibia (BoN) Governor Tom Alweendo will keep the repo unchanged at 7,0 per cent.

Leading economists Robin Sherbourne from Old Mutual Namibia, Daniel Motinga from FNB Namibia and Romé Mostert from Simonis Storm Securities (SSS) all agree consumers shouldn’t expect any relief – at least not relief initiated by the BoN.The commercial banks, however, are still under pressure to drop their prime rates.Alweendo demanded that the banks narrow the interest rate spread – the gap between the repo and the prime rates – to 425 basis points in 2009. He wants the spread to further shrink to 375 basis points by October this year.’I can’t see him (Alweendo) making any changes at this stage,’ Sherbourne said yesterday. It will, however, be interesting to see the Governor’s stance on the rate spread, he said. Prime at all four commercial banks currently stands at 11,25 per cent.Motinga told The Namibian that although there are signs that consumers are emerging from their financial slump, it is unlikely that the BoN will adjust the bank rate. ‘New vehicle sales were up roughly 21 per cent in January. The demand for passenger vehicles, a better gauge of consumer debt appetite, were up only 9,0 per cent year-on-year over the same period. But we see that second-hand vehicle sales are changing direction, thus some weaknesses remain,’ he said.Motinga said in South Africa indications are that consumers are seeing light at the end of the tunnel. ‘But it is indeed early days and central banks are waiting for better first half data,’ he said, adding that interest rates are probably going to remain flat this year. Mostert said the BoN is still assessing the impact of 2009’s rate relief cycle. Inflation coming in at 6,3 per cent in January is further reason to belief that the repo will stay put.’The short-term inflation outlook looks good, with downward pressure remaining for a while. I don’t think the central banks are looking too far ahead in terms of inflation,’ Mostert said. Also supporting his view, is the fact that Namibia remains closely tied to the South African Reserve Bank (SARB). ‘The forward rate curve shows that South Africa will keep its repo unchanged for the rest of 2010 and will start a cycle of increases in 2011,’ he said.