By Mbatjiua Ngavirue
The Bank of Namibia has announced another double-whammy increase in the repo rate – the rate at which it lends funds to commercial banks – of 50 basis points, or half a percent.
Commercial banks are expected to rapidly respond by increasing their prime lending rates from 13,75% to 14,25%.
Deputy Governor of the Bank of Namibia (BoN) Paul Hartmann announced the increase in the bank rate at a media briefing yesterday.
The day before there was feverish speculation in the South African media about whether monetary authorities would strike with a half percent or full percentage point increase.
For cash-strapped consumers it will once again mean increased payments for goods purchased on higher-purchase and rising repayments on overdrafts which monetary authorities hope will reduce demand for durable goods.
2006 saw cumulative interest rate increases of 2% (200 basis points), bringing the total over the past year and a half to 2,5% (250 basis points).
Last year’s increases appear to have been more graduated coming in mostly 25 basis point increases.
BoN has not hit members of the public with such a hefty rise since early December 2006, when it struck with another half-percentage point increase.
At its last monetary policy meeting in April, the bank gave the public some breathing space leaving rates unchanged.
Hartmann however said that since April, the outlook on inflation had deteriorated considerably.
The less favourable outlook, he added, was primarily reflected in sharp increases in transport and food inflation.
However, even if transport and food inflation were omitted from the consumer price index, the underlying inflation also showed a significant upward trend, raising concerns of second round effects of transport and food inflation.
On a more positive note, Hartmann however said the latest vehicle sales and credit figures reflected encouraging signs of cooling down in domestic demand.