Consecutive giant interest rate hike looming

As SARB increases repo rate to 6.25%
In Namibia, the rate at which commercial banks borrow from the central bank currently stands at 5.50%.
Phillepus Uusiku
As expected by analysts, the South African Reserve Bank (SARB) increased the repo rate by 75 basis points (bps) yesterday from 5.50% to 6.25%.

Fin24 recently reported that analysts in South Africa expected a giant hike in the repo rate, despite inflation decelerating for the first time since January. Inflation was recorded at 7.6% in August, compared to 7.6% recorded in 7.8% registered in July.

In Namibia, the rate at which commercial banks borrow from the central bank currently stands at 5.50% and the prime lending rate at 9.25%.

At the last monetary policy announcement in August, the Bank of Namibia increased the repo rate by 75 basis points from 4.75% to 5.50%. Thus far in 2022, the repo rate increased by 175 basis points. The fifth monetary policy announcement for the year 2022 is expected to take place on the 26 October.

Local analysts expect the central bank to increase the repo rate at the upcoming monetary policy announcement due to the ongoing inflationary pressures. According to the Namibia Statistics Agency (NSA), the prices of goods and services in Namibia increased by 7.3% in August 2022, an increase of 3.9 percentage points when compared to 3.4% recorded in August 2021.

In July 2022, inflation was recorded at 6.8%. Year to date, inflation averaged 5.6%.%. Transport and food and non-alcoholic beverages categories were the main two drivers of inflation in August.

The transport category recorded an inflation rate of 23.2% and was mainly driven by operation of personal transport equipment sub category, which captures fuel. Oil and fats were the main drivers of food inflation recording a rate of 26.1%.

According to IJG, August’s inflation rate was the quickest since February 2017. While the rate is high, it is by no means extraordinary for Namibia, as it has reached and breached the 7.0% level a couple of times over the past two decades.

“The Bank of Namibia will respond in kind to any decision taken by the South African Reserve Bank,” IJG said. That implies increasing the repo rate.

According to Simonis Storm, “households face a challenging environment as expensive living costs combined with tighter monetary policy during 2022 add to budgetary pressures. We expect another 100bps hike in the repo rate before the end of 2022, which would lift the prime rate from 9.25% to 10.25%. Rising interest rates will likely weigh on demand for credit, more so for households than corporates as we have seen in recent months,” Simonis Storm [email protected]