Household budgets to be under pressure in ‘22

will be able to afford this increase, coupled with rising fuel and food prices putting a strain on household budgets. Simonis StormPHILLEPUS UUSIKUThe increase in the prices of fuel and food, coupled with expected rising interest rates will put a strain on household budgets, analysts have warned.In February, the Bank of Namibia (BoN) increased the repo rate by 25 basis points from its historic low of 3.75% to 4.00%. The next monetary policy announcement by the central bank is expected to take place on 13 April 2022. Recently, the South African Reserve Bank (SARB) increased its repo rate by 25 basis points (bps) from 4.00% to 4.25%. Analysts also expect the Bank of Namibia to increase the repo rate at the next monetary policy announcement in order to prevent outflow of capital.For the month of February 2021, credit uptake by the private sector remained subdued in line with the current economic state in the country as well as low borrower’s appetite for credit, the central bank said. Growth in private sector credit extension (PSCE) edged up to 2.8% at the end of February 2022 from a growth rate of 2.7% at the end of January 2022. The rise in PSCE growth is explained by increased demand by businesses specifically corporates in the fishing and financial services sectors, BoN pointed out.Loans extended to corporates recorded a growth of 2.7% at the end of February 2022, relative to a lower growth of 2.0% a month ago. The increase reflects a rise in demand for asset-backed credit facilities specifically by corporates in the fishing, transport and financial services sectors during the period under review.In addition, Growth in credit extended to households edged lower at 2.9% at the end of February 2022, compared to a growth of 3.2% reported at the end of the preceding month. The decline was more predominant in the mortgage and overdraft credit categories during the period under review, BoN said.ForecastLast week, the Namibia Statistics Agency (NSA) announced that the domestic economy grew by 2.4% in 2021.According to Simonis Storm, “while we forecast 2.5% gross domestic product (GDP) growth for 2022, we believe that demand for credit will largely remain subdued. We forecast average monthly credit extension of 1.7% in 2022.”Simonis notes that about N$13 billion in claims were paid out from life assurance policies in the last two years. While not all claims were life cover policy pay-outs, these cash benefits can go a long way to finance fixed asset purchases such as homes and cars, lowering the demand for credit from a household perspective.Simonis added that they forecast a 125bps rate hike by the end of 2022. The current average mortgage rate is 8.75% and would increase to 10%, provided the Bank of Namibia increases the repo rate by 125bps by the end of the year.“We consider a household buying a N$2 million house for a 20-year term. If mortgage rates increase to 10%, monthly repayments will increase by 9.2% from N$17 674 to N$19 300,” Simonis Storm said.“Some households might not be able to afford.”Inflation Namibia’s annual inflation rate moderated to 4.5% in February 2022, slightly lower than the 4.6% in January 2022. The moderate decline in inflation was mainly evident in transport inflation while food and non-alcoholic beverages and housing maintained the same rates over the same period, BoN said.Transport inflation stood at 13.2% in February 2022, compared to 0.25% recorded in February 2021. Last week, the Ministry of Mines and Energy announced that fuel prices will increase again as from tomorrow.Petrol prices will increase by N$1.95 per litre, while diesel prices will increase with N$2.95 per litre. This will be the third fuel price increase in 2022.With regard to liquidity, the industry’s cash balances averaged N$2.7 billion in February 2022, depicting a decrease of N$178.6 million from the previous month. The drop in the market cash positions is mainly attributed to funds movement in search of better yields.Lastly, the stock of international reserves decreased by 0.6%, month-on-month, to N$43.0 billion at the end of February 2022. The decline in the official reserve stock was largely due to net commercial banks outflows, attributed by an increase in the import bill specifically in the category of mineral fuels and oils during the period under review, the central bank said.-phillep@nmh.com.na

Household budgets to be under pressure in ‘22

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