Windhoek – Economists predict tough and uncertain times ahead for 2016 and caution consumers to brace themselves for higher interest rates rise of electricity and water tariffs, increasing inflation and high prices for household consumer goods and services.
Consumers are also urged to curb their spending due to increased volatility in the global financial markets and are encouraged to foster a culture of savings and investment as well.
Speaking at the 2016 Economic Outlook on the Namibian Economy recently, the Managing Director of Bank Windhoek Holdings, Thinus Prinsloo said the turbulent start to the year has seen increased volatility in global financial markets.
He added that many people are unsure about the full impact of developments in the global financial markets on their business as well as on their personal investments and financial wellbeing.
“Economic debates regarding inflation and the exchange rate have become recurring themes of late. The SARB (South African Reserve Bank) boldly met expectations with the first 50 basis-point move in a long time,” Prinsloo said.
The South African Reserve Bank announced a 50 basis-point increase in the repo rate to 6.75 percent on 28 January 2016. There are mixed expectation on what is the Bank of Namibia (BoN) would decide at its Monetary Policy Committee meeting on 17 February, with some analysts expecting the BoN to hold the repo rate at current 6.5 percent, as it did in December, while others foresee a 25 basis point increase. Those expecting an unchanged repo rate points towards the downward trend in the growth of instalment credit extended to households. “The Bank of Namibia is satisfied with the cooling down of total PSCE (Public Sector Credit Extension) household debt in particular [and] the Central Bank should be satisfied with the subsiding vehicle sales growth,” opine analysts from the Namibia Equity Brokers.
However, there seem to be a lot of uncertainty about future escalations, which for some other analysts, could prompt BoN to push up the repo rate.
The repo rate is the rate at which the central bank of a country lends short-term money to commercial banks in the event of any shortfall of funds against securities.
According to Suta Kavari, an Investment Strategist at Capricorn Asset Management in Namibia, the South African repo rate increase comes on the back of a “marked deterioration” in the inflation outlook.
He said that the effects of the Rand’s recent and considerable depreciation and the worsening drought conditions on food prices have significantly contributed the deterioration in the inflation outlook.
Inflation targeting the South African central bank now expects inflation to average 6.8% in 2016 from a previous forecast of 6.0%, and 7.0% in 2017 from 5.8%. A peak of 7.8% is expected in the final quarter of 2016 and the first quarter of 2017.
Inflation is also expected to remain and mostly above the SARB’s upper target band, while food prices remain a significant upside risk to the inflation outlook, with food price inflation forecasted to peak at 11% in the fourth quarter this year.
The SARB Governor, Lesetja Kganyago, said that the rate hike is a hard knock to consumers in South Africa, which could spill-over into Namibia.
Rand weakness indicates that petrol prices may rise by 7 cent a litre next month.
South Africa’s growth forecast was also revised downwards for 2016 to 0.9% from 1.5%, before accelerating to 1.6% in 2017 revised down from 2.1%.
Coupled with the latest rate hike, consumers will be bogged down by proposed increases to electricity tariffs, and the likelihood that staple food may increase by close to 50% as a result of the ongoing drought.
As for Namibia, Prinsloo said that the Namibian economy has enjoyed strong support from both monetary and fiscal policy in recent years and in its budget last year, the government prioritised an inclusive growth agenda for the economy with targeted budgetary allocations to sectors with high growth and job creation potential.
“The continued drought conditions, the fall in commodity prices and government’s challenging fiscal position, has made the local operating environment ever more challenging, but also brings with it opportunities,” he maintained.
Kavari said it is now a matter of whether to hike or not the repo rate for the Bank of Namibia, and their hand has now been forced.
“We now expect the Bank of Namibia to raise interest rates by 50 basis points at their next policy meeting in February,” he projected.
The South African and Namibian prime rates are now on par, while South Africa’s repo rate is 25 basis points above Namibia’s.
“We, however, don’t expect any immediate capital flows out of Namibia into South Africa, as we believe that local banks will re-adjust to maintain margin over South African deposit rates. This will result in a margin squeeze for local banks and BoN will have to raise rates in order to insure a healthy banking system,” Kavari added. (Reported by Magreth Nunuhe)