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By: Nghiinomenwa Erastus

Commercial banks will now borrow at the interest of 4%, while consumers and businesses will only access credit and capital if they are willing to pay a 7,75% interest.

However, with different risk profiles for each household and business, the cost of money will be quite different than the prime rate.

More for those repaying their loans, with variable rates, they are in for high monthly payments in line with repo rate increases.

The Villager has spoken to two senior economists in the country to explain why it is necessary to increase the cost of money given the slow progress in economic activities. 

After the Bank of Namibia increased the benchmark rate, which determines the country’s borrowing cost by 25 basis points/0,025% on Wednesday.

Reasons given by the central bank is that the hike is appropriate to safeguard the one-to-one link between the Namibia Dollar and the South African Rand. 

Moreover, this monetary policy stance is also a step towards normalizing the current negative real interest rate environment and establishing a positive real interest rate conducive to long-term economic growth. 


According to the economist Mally Likukela, the central bank, in all likelihood, was supposed to keep the rate at 3,75%.

The country has sufficient international reserves to sustain the currency peg arrangement on his assessment.

As of 31 January 2022, the insufficient stock of international reserves stood at N$42,9 billion compared to N$43,9 billion at the end of December 2021. 

At this level, international reserves are estimated to cover 5,8 months of imports and hence remain adequate to protect the peg and meet the country’s international financial obligations.

Likukela also added that the difference between the South Africa repo and Namibia repo was not wide enough to trigger capital outflow to SA.

In his assessment, there has been weak stimulus from low-interest rates, as seen in the low uptake of credit by businesses and households over the past months from when the bank started cutting the Repo.

Growth in private sector credit extension (PSCE) declined to 2,4% in 2021, lower than the 3,5% registered in 2020.

The slowdown in PSCE was due to lower demand for credit by both businesses and households due to slow domestic economic activity during the review period.

Since the last monetary meeting, year-on-year growth in PSCE slowed to 1,2% in December 2021, from 2,9% registered in October 2021.

Likukela highlighted that now that the central bank has increased the Repo, he said the monetary committee risk created unintended consequences to consumers already highly indebted.

“These interest rates will further depressed credit uptake, and therefore, business confidence will be further eroded,” he said.

One of the central bank reasons is to stabilize inflation; according to Likukela, inflationary pressures will be aggravated due to businesses passing through the cost of capital service to consumers.

“Thus, the Bank of Namibia would be helping the economy by holding the rates steady for now,” said Likukela.

Annual average inflation (cost of goods and services) increased to 3,6% in 2021, compared to 2,2% in the previous year.

The increase in inflation was mainly driven by higher prices for the food, transport and housing categories.

The central bank analysis indicated that inflationary pressure accounts for supply constraints for certain food categories, a rise in international oil prices, and an increase in dwelling rent. 

Economist Omu Kakujaha-Matundu explained that the monetary policy arrangement under the Common Monetary Area marriage holds greater benefits.

He also explained that the South Africa Reserve Bank has greater capacity in terms of economic forecasting- “since our economies are intertwined, inflation is imported from South Africa”.

So, it is better to use the South African inflation control measures.

Kakujaha Matundu said for economic growth, Namibia should get its house in order- this should be done by dusting off all the agricultural and industrial plans that are gathering dust and implementing them.

On stabilizing prices of goods and services, the senior economist explained that Namibia buys at higher prices, factoring in transport cost and other factors, prices will increase in response, highlighting how the country imports part of the inflation being experienced.

So, according to Kakujaha-Matundu, there is still a need to increase the repo rate to discourage consumption.

This is despite reducing investment spending, aggregate demand, and slowing economic growth.

Economic lecture Eden Shipanga said that if it weren’t for the Common Monetary Area arrangement, Namibia would not favour the rate hike. 

“We have seen how supply disruption has cost us in terms of fuel prices, which transmit into inflationary pressure in all sectors of the economy,” said Shipanga.

He added that the whole idea needs scrutiny, and economic agents should expect further economic depression as they face high debt servicing costs.

The two economists highlight the unending debate of the pegging of the Namibian dollar to the South African rand- its benefits and challenges.

In the future, the domestic economy is expected to grow around 3% in 2022. 

Risks to the domestic economic outlook in the medium-term remain sudden surges in Covid-19 cases and vaccine hesitancy. Email:


Julia Heita

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