After 10 consecutive increases in the repurchase rate, the South African Reserve Bank has finally applied a break.
However, while the bank opted to keep its prime lending rate at 8.25% on Thursday, the bank’s Governor Lesetja Kganyago warned that this was not the end of the hiking cycle.
The reserve bank had previously hiked rates 10 consecutive times since November 2021; a move that Namibia has mimicked.
The reserve bank’s decision was influenced by the fact that inflation forecasts came in lower than previous ones and economic conditions improved.
Kganyago said future rate decisions would continue to depend on economic data and risks to the inflation outlook.
Namibian economists previously predicted the South African central bank to hike the repo rate by 25 basis points to prevent the Rand from depreciating.
Namibia follows South African monetary policy decisions to maintain the basis point differential. Namibia’s next monetary policy announcement will be on 16 August.
Economist Klaus Schade opined that if the interest rates in South Africa are significantly higher than Namibia, then commercial banks and other financial institutions or investors might move their money out of Namibia and go invest in South Africa, because they will receive a higher return.
“Therefore this can be a decisive factor.”
Furthermore South Africa is said to increase their interest rate within the year, even if they have increased their rates by 25% basis points. It is also noted that there is a spread between Namibia and South Africa’s Repo rate which is up to 150% pieces points which is currently at 50% rate.
“This is a kind of flexibility for the Bank of Namibia, not necessarily to follow the rate decision of the South African reserve Bank,” Schade said.
Lower income earners borrow money to make ends meet and they are also affected by the interest rate, because in order to honour their obligations, they need to reserve more money in order to pay their loans, meaning there is less money left for them.
This, Schade stated, reduces the demand for the economy and also the demand for locally produced goods and services.
“Therefore, this has a negative impact on Namibian businesses.”
He mentioned this can put pressure on households that can no longer service their loans and their houses or cars on credit will be repossessed, and families will find it hard to find new houses on such short notices.
Furthermore this has a social implication when the interest rate increases further and puts pressure on households.
Spokesperson of Mines and Energy Andreas Simon, say when the repo rate increases it becomes a problem.
He mentioned, that if one goes to the bank and receives a loan, the interest rate is higher and you find yourself paying three to four times than the usual interest rate.
Meaning that people spend more than what they make.
Therefore he hopes the Bank of Namibia can soften it’s blow when it comes to the repo rate increase, even though banks benefit from such an increase.
The repo rate in South Africa currently stands at 8.24% which is the highest in 14 years.