For the first time since mid last year, the Bank of Namibia (BoN) has knocked down interest rates to control inflation that currently stands at six percent.
This move could, however, open avenues for more borrowing, which has been castigated for slowing down economic growth in the country.
This action comes a few weeks after the South African reserve bank slashed its interest rates by a considerable 120 basis points.
It has also rubberstamped the growing belief that the central bank has been reactionary to movements happening across the border to the south.
BoN confirmed its rate knock-down at last week’s monitory policy statement, although the governor, Ipumbu Shiimi, did it amid his own confirmed worries that the middle-class has been on the borrowing spree to fund luxury cars and consumables, thereby compromising economic stimulation.
Shiimi told The Villager that there is growing prospect of scaling down economic growth projections within the next few weeks when the bank’s research department finalises its research and analysis of the prevailing ultra and intra-economic activities.
“We have been monitoring the trends in the world (especially in the developing world) closely and there seems to be a side effect on us from whatever is going on elsewhere, hence the need to lower our interest rates by 50 basis points in a bid to contain inflation and give the employment a breather,” he said.
In economic situations, central banks play a balancing effect on both inflation and interest rates whereby should the price of goods be moved at a reasonably fast rate, then interest rates are lowered while should interest rates be increased, inflation stabilises.
The Namibian and South African inflation has been pushed up by rising grain prices following the United States of America’s freeze on grain exports and spiral movements of fuel worldwide.
On the outlook, BoN said the movement of the prices of goods and services will stabilise and recede in the near future when the price of fuel starts going down in the event of increased production by the oil producing nations.
Although Shiimi expressed optimism that sectors such as agriculture and mining seem to be showing recovery signs, there is a growing need for the country to cut down on the excessive borrowing on the market.
“We have always maintained our calmness on the growing borrowing but if the trend continues, then there might be need for us to act and we will, definitely. Should there be a need to put up drastic measures on the ground to contain the problem, and then we would definitely have to do it,” said Shiimi.
He also acknowledged that the other developing countries including Malaysia and Singapore have been keeping a close eye on their interest rates in order to cushion the economy from the growing food prices.