Credit uptake unresponsive to low rates
The successful procurement and quick rollout of Covid-19 vaccination in Namibia will be critical for speed of the economic recovery.
15 April 2021 | Economics
The economy remains weak and requires some support. Johannes !Gawaxab, Governor: Bank of Namibia (BoN)
Despite the repo rate being at a historical low of 3.75% to making borrowing attractive, credit uptake by businesses and households remain weak.
Private sector credit extension (PSCE) averaged 2% during the first two months of 2021, much lower than the 6.7% recorded during the same period in 2020.
The Bank of Namibia (BoN) held their second monetary policy announcement for the year and decided to leave the repo rate unchanged at 3.75%. This implies that the prime lending rates for local commercial banks will also remain at 7.50%.
The monetary policy committee (MPC) of the BoN is of the view that the rate remains appropriate to continue supporting domestic economic activity, while at the same time safeguarding the one-to-one link between the Namibia dollar and the South African rand.
In an interview with Market Watch, central bank governor, Johannes !Gawaxab notes that the domestic economy remains weak and requires some support.
He adds that inflation is well contained and the outlook for the rest of the year will be around 3.2%.
Some of the financial developments that led to decision to leave the rate unchanged is the domestic economic activity that contracted severely by 8% in 2020, compared to a contraction of 0.6% in 2019.
Contractions were observed in key sectors such as tourism, transport, mining, agriculture, manufacturing, construction, wholesale and retail trade, as well as the public sector, !Gawaxab pointed out.
The contraction was mainly due to the devastating effects of the Covid-19 pandemic, with the sharpest declines in output recorded in the tourism and transport sectors.
On the contrary, activity in the electricity and water, as well as information and communication sectors, recorded positive growth during the same period.
Recent developments in the domestic economy also pointed to subdued activity in most economic sectors during the first two months of 2021, compared to the same period of 2020. Going forward, the domestic economy is expected to grow by 2.7% in 2021, he added.
Annual average inflation increased to 2.7% during the first two months of 2021, compared to 2.3% for the corresponding months in the previous year.
The increase in inflation was mainly reflected in the food and beverages categories during the period under review.
On a monthly basis, overall inflation stood at 2.7% in February 2021, the same as the previous month. Overall inflation is projected to average around 3.2% for 2021, he said. The next meeting of the MPC will be held on the 15th of June 2021.- [email protected]