News Column

Repo Rate Up to 5,75 Percent

June 19, 2014

Chamwe Kaira



THE central bank yesterday increased the repo rate by 0,25 percentage points to 5,75%, governor Ipumbu Shiimi said in Windhoek.

The reasons for the hike are that international commodity prices are declining, inflation has shown an upward trend in recent months and the domestic private sector credit has been increasing since December 2013.

"The rapid growth in imports of vehicles, partly financed by installment credit, remains a concern. This has put pressure on the international reserves of the country and requires monitoring. In light of these developments, the monetary policy committee decided to increase the repo rate by 0,25 percentage points to 5,75%.

Domestic growth remained positive during the first quarter of 2014, supported by construction, wholesale and retail trade, as well as the communication sectors. In contrast, activities such as livestock farming and uranium mining performed weakly.

Going forward, Shiimi said the domestic economy is forecasted to improve in the remainder of 2014, also supported by construction activities, as well as strong growth in demand. Declining international commodity prices remain a concern as it may negatively affect mineral production.

He said inflation is expected to average 6% this year. Inflation has shown an upward trend for the past five months. Annual inflation rose from 4,9% in December 2013 to 6,1% in May, mainly due to increases in food and transport prices.

The annual growth rate in domestic private sector credit increased to 15,8% in April, compared to 14,3% in December last year. Growth in private sector credit resulted from higher demand by both individuals and businesses.

"The rise in household credit largely reflected strong growth in instalment credit and overdraft loans ," Shiimi said.

He said during the first quarter of 2014, the trade deficit increased significantly.

"A rapid growth in imports of vehicles, partly financed by instalment credit, remains a concern," he said.

The total number of vehicles sold during the first four months of 2014 increased by more than 50%, compared to the same period in 2013. The value of imported vehicles amounted to N$2,2 billion, which is a significant amount in relation to the total import bill of goods of N$15,9 billion.

"Unproductive imports have put pressure on international reserves of the country and require monitoring. Also, targeted interventions have been recommended to the relevant authorities, but this may take time to implement, due to legislative changes required," he said.

In a note on the hike, IJG Security said it views the rate increase as a positive development, sounding a warning bell to consumers as to the possibility of further interest rate increases in the future.

"As such, we believe consumers should be cautious as to the repayment effect of interest rate increases when taking out new debt at this point in time. We further see this as a positive move to support the country's balance of payments," IJG said.


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Source: AllAfrica


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