Stock of reserves to support small repo hike

The significant increase in foreign reserves in April will support a small repo rate hike increase by the Bank of Namibia (BoN) next week, analysts said. The stock of international reserves increased to N$51.8 billion in April 2023 relative to the N$48.3 billion at the end of March 2023. This level remains adequate to support the currency peg between the Namibia Dollar and the South African Rand, the central bank said.PSG expects the jump in foreign reserves to support another small repo rate increase.In addition, IJG Securities anticipate a significant boost in foreign reserves due to the sharp depreciation of the Namibian dollar against the US dollar in May. This improvement in the foreign reserve position may provide an opportunity for the BoN to stay on a less aggressive rate hike cycle compared to its counterpart in South Africa, as it seeks to maintain price stability.”The South African Reserve Bank (SARB) recently announced a 50 basis points increase in the repo rate from 7.75% to 8.25%.The rate at which local commercial banks borrow from the Bank of Namibia currently stands at 7.25%, 100 basis points lower than South Africa. According to PSG, this is unusual. “Typically, the BoN favours maintaining a 25 basis points buffer above the South African repo to avoid capital outflows, but back in 2008 when inflation was much lower in Namibia than in South Africa, the Namibian repo was a sizeable 150 bps below the South African repo. Inflation locally stood at 6.1% in April, while South Africa recorded 6.8%.The third monetary policy announcement for the year is expected to take place next week. PSG expects a further 25 basis points hike.Simonis Storm said a 25 basis points hike looks very likely and would be the responsible thing to do given the current financial position of the average Namibian household. “This will take the repo rate to 7.50% and we then expect no further hikes for 2023 given the current information at hand.”Uptake Private sector credit extension (PSCE) growth edged lower to 2.6% year-on-year in April 2023 compared to 3.9% at the end of March 2023. The decline in PSCE growth is explained by a decrease in demand by both the household and corporate sectors coupled with higher net repayments.“This suggests that corporates are more reluctant to borrow under the current conditions, where both economic activity and interest rates are unfavourable for stimulating credit demand for businesses.Looking ahead, we expect credit uptake to remain modest, as we see little support for increased demand. Considering the marginal impact of May’s base effect, we anticipate that annual PSCE growth figure will remain stable around 2.5% in May,” IJG said.Simonis Storm notes that some households desperate for credit might continue to seek alternative options such as microlenders. On the corporate side, credit growth might improve marginally as local banks participate in commodity explorations and as activity improves in the tourism and transport sectors.PSG expects that the high-interest rate environment and the moderation in economic growth in 2023 will continue to hamper credit demand this year. “We forecast real gross domestic product (GDP) growth to slow to 2.9% this year from 4.6% in 2022.”-phillep@nmh.com.na

Stock of reserves to support small repo hike

Comments

Namibian Sun 2025-04-04

Please login to leave a comment

Stock of reserves to support small repo hike

Comments

Namibian Sun 2025-04-04

Please login to leave a comment

Login