Namibian Sun

While the majority of analysts expect the Bank of Namibia (BoN) to drop its repo rate today, they also agree that lower interest rates are unlikely to get the consumer and the economy out of the doldrums.

Both IJG Securities and Cirrus Securities believe the BoN will follow the surprise move by the South African Reserve Bank (SARB) last month and confirm a decrease of 25 basis points (bps) at its first monetary policy announcement of the year this morning.

That will bring the BoN's repo to 6.25% and will spur local commercial banks to drop their prime lending rate by 25 bps to 10.0%. Despite the consumer's dire predicament, the BoN's hands are tied when it comes to bigger relief. “Regarding the size of the cut, we simply don't have scope for a larger cut – a 25 bps cut would put us in line with the SARB's rate and, given the 'impossible trinity', we theoretically should not be below the South African rate,” Cirrus economist Robert McGregor told Market Watch.

The “trinity” is an independent monetary policy, free movement of capital and a fixed foreign exchange rate regime.

'Little impact'

Most of the metrics provide motivation to cut, McGregor said.

“Economic growth remains poor, and while expected to post a recovery in 2020 after 2019's deep contraction, growth will still be relatively weak and confined to a handful of economic sectors.

This means that it is unlikely that the average Namibian will feel it, especially as growth will remain below population growth levels – meaning we will continue becoming poorer in per capita terms, he continued.

Policy changes and policy certainty to attract foreign investment will at this moment likely be more effective to revive economic activity than more accommodative monetary policy, IJG Securities said in their analysis of the latest private sector credit extension (PSCE) figures.

However, a 25-bps rate cut should provide some relief to heavily indebted consumers, IJG added.

McGregor agreed: “Cuts to the repo rate will do little to stimulate spending and growth in Namibia, as households are already heavily indebted.”

While a cut would provide some relief, the repo rate is already relatively low and a further 25bps cut would not provide enough relief to make a marked impact on growth, he said.



Drowning in debt

The latest BoN figures show consumers owed local commercial banks about N$12 billion in overdrafts, loans and other advances at the end of last year. The majority of this, about N$8.6 billion, was for other loans and advances, which include personal loans and credit card debt.

Compared to 2018, this is an increase of more than N$2 billion or 32%. Consumers' debt for other loans and advances has more than doubled since the end of 2015.

In their 2020 economic outlook, Cirrus noted that average household debt levels were approaching 100%. “In other words, the average Namibian household has already spent nearly all next year's income,” the economists said.



Banks

In its outlook, Cirrus said “2019 saw the upswing in arrears to uncomfortable double-digit numbers and resultant increases in non-performing loans” at banks.

“We also see credit extension growth remaining low, no surprise as households have little scope to take on more debt and the banks are cautious with their lending given the risky credit environment,” McGregor said.

He pointed out that real interest rates - rates adjusted for inflation - are at their highest in over a decade. “In other words, real interest rates are higher now in Namibia's worst economic period than during the 'boom' years – meaning the real rates have not been counter-cyclical,” McGregor said.

According to Cirrus: “For all intents and purposes, monetary policy has run its course; appropriate fiscal and economic policy are the tools needed to return Namibia's economy to meaningful growth.”

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Jo-Maré Duddy –