Lowest rates since independence

Jo-Maré Duddy – Friday’s unprecedented repo rate cut by the Bank of Namibia (BoN) will pump about N$1 billion into the economy this year.

The BoN dropped its repo by 100 basis points to 5.25%, the lowest in the history of an independent Namibia.

The closest the repo came to the latest rate was from August 2012 to May 2014 when it was 5.5%.

The latest repo cut will mean that local commercial banks have to drop their prime-lending rates by 100 basis points to 9.0%.

Addressing an urgent media conference on Friday afternoon, BoN governor Iipumbu Shiimi urged banks not to delay the rate decrease and pass the benefit on to consumers and business as soon as possible.

Shiimi on Friday morning called a special meeting of the central bank’s monetary policy committee (MPC) after the South African Reserve Bank (SARB) on Thursday dropped its repo by 100 percentage points.

Central banks across the globe has been slashing rates to stimulate economies as the outbreak of the coronavirus wreak havoc.

The MPC was only supposed to meet next month and the BoN’s monetary policy announcement scheduled for 14 April. Shiimi said the special MPC meeting was called in light of the “recent extraordinary events emanating from the Covid-19 pandemic”.

‘Cushion’

The MPC took the decision “to help cushion the anticipated impact of Covid-19 and support domestic economic activity”, he said.

The economy slowed during the first two months of 2020 compared to the same period last year, Shiimi said. Slower growth was mainly reflected in mining, wholesale and retail trade, as well as tourism.

“Preliminary assessments indicate that the domestic economy may not be spared from the brunt of Covid-19 and therefore continue to weaken in 2020,” the governor added.

Asked for more detail on the expected impact of Covid-19 on Namibia’s economy, Shiimi said “it was early days”. But it will be “severe”, he added.

The BoN is reviewing its economic outlook for 2020 and will release an updated forecast soon, he said.

In its economic outlook released last month, the BoN forecast gross domestic product (GDP) growth of 1.5% for this year – much needed after the estimated growth of -1.9% in 2019, and actual growth of 0.3%, -0.1% and -0.3% in 2018, 2017 and 2016.

Shiimi said the BoN will continue to monitor the development in the economy and “will take the necessary steps within its mandate to support the Namibian economy during this extraordinary time”.

A billion extra

Shiimi didn’t want to put a number on the relief lower interest rates will bring consumers and business.

Rowland Brown from Cirrus Capital told Market Watch it is “hard to quantify new loans”.

At the end of January this year, total private sector debt at local commercial banks was about N$104 billion – nearly N$58.7 billion in household debt and N$44.5 billion in business debt.

The latest rate cut therefore means that “an additional billion is kept in the pockets of households and companies”, Brown said.

However, he expects “the banks will be very reluctant to lend at these risks, given the credit risk”.

Fiscal aid

Dylan van Wyk from IJG Securities said monetary policy is unlikely to have a stimulating effect in the current circumstances.

Namibia needs a targeted fiscal policy, specifically measures to supplement the income of those who can’t work because of the Covid-19 outbreak, he said.

One will have to see whether any funds can be released in the budget for this emergency. However, Namibia doesn’t have a lot of fiscal space, meaning that such measures will have to be funded by debt, Van Wyk said.

Eloise du Plessis from PSG Namibia said she was “very relieved” that the BoN reacted so quickly.

However, she also feels that Namibians are going to need fiscal help too and that this will be “very difficult given the state of government’s coffers”.

“Hopefully this crisis will make it easier to take politically unpopular decisions,” Du Plessis said.