No merry news expected from BoN
Jo-Maré Duddy – Indebted consumers and businesses should expect no further interest rate relief today from the Bank of Namibia (BoN), economists agree.
All analysts approached by Market Watch believe the central bank will keep its repo rate unchanged at 3.75% at the monetary police announcement this morning. This means the prime lending rate of local commercial banks will remain at 7.5%.
The South African Reserve Bank (SARB) last month also kept its repo unchanged at 3.5%.
The BoN has lowered its repo by 275 basis points since February, bringing interest rates to historic lows. The repo has dropped from 6.5% at the beginning of 2020. The prime lending rate of commercial banks in the beginning of the year was 10.25%.
MUTED CREDIT GROWTH
Historically low interest rates haven’t translated into a growth in loans as evident from the private sector credit extension (PSCE) figures, said Eloise du Plessis, head of research at PSG Namibia.
The BoN’s latest stats show overall PSCE in October was a mere one percent higher than in October 2019. This is the lowest annual growth on IJG Securities’ records dating back to 2002.
IJG analyst Dylan van Wyk said although a rate cut is certainly possible, he believes the benefits of even more accommodative monetary policy will be minimal.
“We believe that the BoN will likely aim to maintain the 25-basis points buffer over the South African repo rate. This makes Namibia slightly more attractive for short-term deposits, which should aide both banking sector liquidity and treasury bill demand,” Van Wyk said.
SAVINGS
Cirrus Securities’ economist Robert McGregor said the BoN is likely to follow the SARB’s rate hold.
“Rates are at historical lows, and although the significant rate cuts this year have provided relief to borrowers, we have not seen an uptake in credit to spur demand. In fact, PSCE has slowed dramatically as the year has progressed, down to historic lows in recent months,” McGregor told Market Watch.
He elaborated: “Such low administered rates, i.e. repo and the linked prime rate, do not encourage lending when credit risk is so high, especially as better returns can be found elsewhere – such as government debt, which can offer better returns for shorter duration, and government debt is theoretically ‘risk-free’.”
McGregor added that while rate cuts provide relief to borrowers, the converse of this is that it also reduces the interest earned by savers.
“I believe that, taking the magnitude of earlier cuts into consideration, a further cut will likely pose a greater loss to savers than benefit to be gained by borrowers,” he said.
Du Plessis maintained that rates shouldn’t change before there isn’t significant movement in the economy.
All analysts approached by Market Watch believe the central bank will keep its repo rate unchanged at 3.75% at the monetary police announcement this morning. This means the prime lending rate of local commercial banks will remain at 7.5%.
The South African Reserve Bank (SARB) last month also kept its repo unchanged at 3.5%.
The BoN has lowered its repo by 275 basis points since February, bringing interest rates to historic lows. The repo has dropped from 6.5% at the beginning of 2020. The prime lending rate of commercial banks in the beginning of the year was 10.25%.
MUTED CREDIT GROWTH
Historically low interest rates haven’t translated into a growth in loans as evident from the private sector credit extension (PSCE) figures, said Eloise du Plessis, head of research at PSG Namibia.
The BoN’s latest stats show overall PSCE in October was a mere one percent higher than in October 2019. This is the lowest annual growth on IJG Securities’ records dating back to 2002.
IJG analyst Dylan van Wyk said although a rate cut is certainly possible, he believes the benefits of even more accommodative monetary policy will be minimal.
“We believe that the BoN will likely aim to maintain the 25-basis points buffer over the South African repo rate. This makes Namibia slightly more attractive for short-term deposits, which should aide both banking sector liquidity and treasury bill demand,” Van Wyk said.
SAVINGS
Cirrus Securities’ economist Robert McGregor said the BoN is likely to follow the SARB’s rate hold.
“Rates are at historical lows, and although the significant rate cuts this year have provided relief to borrowers, we have not seen an uptake in credit to spur demand. In fact, PSCE has slowed dramatically as the year has progressed, down to historic lows in recent months,” McGregor told Market Watch.
He elaborated: “Such low administered rates, i.e. repo and the linked prime rate, do not encourage lending when credit risk is so high, especially as better returns can be found elsewhere – such as government debt, which can offer better returns for shorter duration, and government debt is theoretically ‘risk-free’.”
McGregor added that while rate cuts provide relief to borrowers, the converse of this is that it also reduces the interest earned by savers.
“I believe that, taking the magnitude of earlier cuts into consideration, a further cut will likely pose a greater loss to savers than benefit to be gained by borrowers,” he said.
Du Plessis maintained that rates shouldn’t change before there isn’t significant movement in the economy.
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