Central Bank raises interest rates to curb borrowing

 

Windhoek- The Bank of Namibia plans to continuously raise the cost of borrowing through additional interest rate hikes to curb consumers’ rising indebtedness, if two increases this year of its benchmark interest rate this year, fail to reduce growing appetite for bank loans and overdrafts.

 Namibia’s central bank estimates consumer debt at 87 percent of income and says credit demand by households and business climbed 15.4 percent in June, from 13.9 percent during the last six months of 2013. 

Namibia raised its repurchase rate by a quarter of a percentage point to 6 percent on August 20, the second such raise this year, to curb excessive consumer borrowing.

 “Whether it’s (recent hikes) sufficient or not depends on how the borrowers are going to respond and the public is going to respond, if we start to see the credit numbers going down, but of course we have to watch it over time because the impact is not immediate, then yes one would say that it’s enough but if it’s not responding, obviously it will go up,” central bank Governor Ipumbu Shiimi, said in an interview in Namibia’s capital, Windhoek.

 It would take up to 24 months for the central bank to observe the effect of the two previous rate hikes, Shiimi said, hinting at further hikes as the central banks seeks to tighten monetary policy. 

“Depending on the situation on the ground and if we feel that the main reasons that we have given is not enough as we watch the credit numbers unfold, that scope could be there, it (rate) can be raised further. 

“One would have to observe the situation for quite some time but it doesn’t mean one has to wait for 18 months, if we think that the situation on the ground warrants a decision, the interest rate will have to be increased,” Shiimi said.

 The central bank is under pressure to maintain sufficient foreign currency reserves due to a rising import bill in luxury products. Consumers are on a ‘spending spree wasting foreign currency which is scarce’, a situation which the bank governor says ‘cannot be allowed to go on’. 

“Raising interest rates is just one part of the solution. People are borrowing and spending money to purchase luxury goods spending scarce international reserves, we have to take some steps,” Shiimi said.

EXECUTE NDP4

Hope for an oil discovery offshore Namibia, with a coastal area that geologists say mirrors that of Brazil across the Atlantic could offset the country’s high import bill. 

“Oil is our number one import in the country and if we are no longer importing oil, the trade balance is going to change significantly, it’s going to result in a trade surplus, but obviously it doesn’t mean that if you have oil, you have solved all your problems,” Shiimi said.

 Namibia plans to issue a bond on the Johannesburg Stock Exchange (JSE) before the end of its financial year in March 2015 to raise money to finance government expenditure.

 “We have had an existing programme listed on the JSE since 2012 which will run for five years so we are continuing with that programme. When government announced its borrowing programme in April it said that issuing the bond will be within the current fiscal year which is ending in March next year. Details on the amount will become available when we talk to the market and determine the appetite of the market,” Shiimi said.

 Economic growth, which the central bank forecasted at 5.4 percent and 4.8 percent in 2015, would be supported by harbour expansions and supporting infrastructure such as rail and road transports.

 The central bank governor said Namibia is ‘positioning itself as a logistics centre’ for importers and exporters in Southern Africa ‘and this has got other linkages in infrastructure that can support growth’.

 Namibia is expanding the container handling terminal at its deep water port of Walvis Bay, raising its capacity to a million containers from around 350,000 containers, currently. 

There are plans to build another port to serve land locked Southern African neighbouring countries such as Botswana, Zambia and Zimbabwe. 

The country is jointly planning a 1.500 kilometre railway line linking coalfields in eastern Botswana to its Walvis Bay port, a project known as the Trans Kalahari Railway, which has raised hopes of opening up intra-regional trade between the neighbouring countries.

 But Shiimi noted that the country, “need to work hard to diversify the economy and raise its global competitiveness. We still have to work towards diversifying the economy, there has been some progress such as cement manufacturing, copper processing, zinc processing but I think we still have a long way to go.

 “The starting point is actually National Development Plan 4 (NDP4), it is a blue print which has identified certain sectors. 

But what we need to bring about and think about every day is execution, how do we make sure that this plan that we have is executed to expectations”.

REGIONAL MARKET

Namibia has a small market and a viable manufacturing sector strategy will depend on capacity to export, Shiimi said, adding that whilst trade with Angola is picking up, the country also needs to start looking at the regional market ‘seriously’.

 The regional market is growing and is proving to be a good market for some of the country’s products and whilst there are still challenges to do with infrastructure and other trade barriers its not impossible to boost intra-regional trade, he said.

 One initiative which will likely boost commerce between Namibia and rest of Southern Africa is a platform which is being set up by a committee of central bank governors in SADC to facilitate transactions and money transfers across the region.

 Plans for a regional payment systems, would be operational in two years and would eliminate routing of transactions which originates locally via European or American financial institutions.

 “This will eliminate uncertainties and inefficiencies in the current system. 

And once payments are guaranteed, this will mean that goods and products can flow easily in the region,” Shiimi said. 

“Current system is very cumbersome” and a “new system is required which corresponds to regional banking systems.

 “We need to facilitate the flow of money within the region by creating a regional platform for money transfers and transactions so that if I want to pay somebody in Angola or Zimbabwe, the money should not have to go to Europe before it reaches a bank in Angola or Zimbabwe. 

“This is one thing which is quite advanced, it’s now a question of fine tuning and encouraging as many countries to join in so within a short period of time, two years or so we will have a good payment system platform,” Shiimi said.

 Namibia has no plans to abandon its currency peg to the South African rand, an arrangement which Shiimi says has benefited the nation’s economy. 

“The benefits still outweighs the costs, our economies are very integrated which makes trade very easy. Namibia’s currency peg to South Africa eliminates exchange rate risks and drive commerce between the two countries.

 “The financial sector is highly integrated and that supports trade between the two countries. 

It also means we are able to attract investments from South Africa very easily.”

September 2014
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