By:Hertha Ekandjo
Following the South African Reserve Bank (SARB) announcing an increase of the repo rate by 25 basis points, which brings the repo rate to 7.25% from 7%, Namibians indebted households and businesses should expect the domestic central bank to follow suit.
An increase in the repo rate will automatically increase monthly debt repayment, and for the over-indebted consumers, higher lending rates can mean that their monthly repayments are harder to meet. Also, property prices rise as the repo rate rises.
The neighbouring country yesterday increased its repo rate by 25 basis points, following the federal reserve in the United States having increased its repo rate by 50 basis points in December 2022.
Economist Theo Klein said the SARB increasing the repo rate this week was expected. According to him, the move is the result of following what the federal reserve did in the US in their December meeting, where they hiked the repo rate by 50 basis points.
“However, we do expect the interest hiking cycle to come to an end by the end of the first quarter of this year,” he said.
Klein added that if South Africa had not followed the same move, they would have risked widening the interest rate differential between the US and South Africa which could have led to the Rand weakening.
“Obviously, a weaker rand exchange rate is inflationary for the South African economy given that they have a very high import requirement. Through this indirect way the South African reserve bank is trying to limit inflation by limiting rand’s weakness,” he explained.
Klein is of the view that Namibia would follow a similar move of hiking by 25 basis points.
“Thereafter we do see interest rates remaining unchanged at their current high levels before they get cut. We only see interest rates being cut toward the end of 2023. However, the cut in interest rates will be a lot more gradual than what the hike has been since last year,” the economist pointed out.
Prior to the announcement in South Africa, the median expectation of economists in a Bloomberg survey was that three members of the monetary policy committee (MPC) would vote in favour of a 50 basis-point hike, and the other two for a quarter-point increase. The panel has lifted borrowing costs by 75 basis points in each of its last three meetings.
Research shows the SARB typically moves in increments of 25 basis points, and another increase will take the benchmark repurchase rate to the highest level in almost 14 years. It will also result in a positive real interest rate, potentially making local assets more attractive to foreign investors and creating room for the MPC to start thinking about ending the hiking cycle.
Though the rate of price growth is expected to slow in 2023 as the worst global inflation shock in a generation eases, it could take longer to approach 4.5% — the midpoint of the central bank’s target range at which the MPC prefers to anchor expectations. That may force the MPC to keep interest rates higher for longer.
Loan Holders Likely To Start Feeling Pressure From Repo Rate Hikes
