BoN warns against excessive borrowing


Windhoek- Namibia’s central bank has warned that excessive household borrowings will have a negative impact on banking operations and will continue to pressure monetary authorities to further raise the cost of borrowing.

While the Bank of Namibia (BoN) is still searching for policy interventions to curb household expenditures, supported by borrowings from commercial banks, one option it will use is raising its benchmark rate.

“We will continue to raise interest rates to contain household borrowing, we don’t want consumptive credit to get out of control, it’s not good for households, commercial banks themselves and can have ramifications for the entire economy,” central bank governor, Ipumbu Shiimi, said.

“The only instrument the bank has is the monetary policy,” he added.

This is the strongest hint yet that the central bank will raise interest rates further at its next monetary policy announcement in December.

The central bank left its benchmark rate unchanged at 6 percent on October 22, after it raised it by 25 basis points at its August 20 meeting.

While “it’s still too early to see impact” of previous rate increases, rising borrowings point to Namibian “households being very insensitive to interest rate decisions”, Shiimi said.

The bank will require up to 22 months to monitor the behaviour of consumers to rate hikes, Shiimi added.

Growth in private sector credit rose 15.5 percent in the first eight months of 2014 from 14.2 percent for the previous eight months driven by business sector and individuals. Overdrafts, loans and advances and instalment credits are pushing up individuals’ borrowings, Shiimi said.

Household debt as a share of disposable income rose to 87 percent end of December 2013 from 84 percent six months earlier, Shiimi said.

“We can also look at other (statutory) measures that can slow down consumptive credit. It’s not only interest rates we will have to consider,” he said.

Consumers are borrowing to finance purchase of non-productive goods such as vehicles and other luxuries. 

Namibia’s import bill rose 32.9 percent to R57.5 billion during the first eight months of 2014 with imports of passenger vehicles gobbling up a whopping R7.4 billion of the total import bill during the first eight months of this year, Shiimi said.

Exports rose 13.3 percent to R37.8 billion, during the same period. A rising import bill pushed the country’s trade deficit to widen by R5.6 billion during the second quarter from R3.5 billion during the same period in 2013.

“The bank remains concerned about the importation of luxury goods, which continue to exert pressure on the international reserves of the country. Despite this pressure, international reserves remain sufficient to meet the country’s foreign obligations,” Shiimi said.

November 2014
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