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Unnecessary household credit influences MPC

Ipumbu Shiimi

The Bank of Namibia’s Monetary Policy Committee this week increased the repo rate by 0.25 basis points to 6.5%. The move is an attempt by the central bank to curb high growth in household credit, particularly that of instalment.

Addressing members of the media, Bank Governor, Ipumbu Shiimi explained the stance taken by the central bank to curtail credit extended to households. Private sector credit extended increased by 16.7% on average during the first four months of 2015. “Domestic credit demand continues to be strong. The Monetary Policy Committee noted that the overall credit extended to individuals remained elevated, especially instalment.”
“The Monetary Policy Committee noted that a large portion of these loans continue to be primarily used to finance unproductive imported luxury goods. With this increase in the repo rate, the expectation is that the deposit taking institutions will also increase deposit rates by the same margin, thereby encouraging saving,” he added.
Shiimi was optimistic about the inflationary path, which he said would be aided by the decline of oil. “Thanks to decline in oil, inflation continues to decline. Inflation is expected to remain low and stable.”
Expressing its view in a statement, local stock-broking firm IJG Securities said, “Private Sector Credit Extension growth remains high, however growth in household borrowing has slowed notably, to just 12.1%, well below nominal GDP growth suggesting household deleveraging relative to income, is taking place. Concern in this regard is that instalment credit growth remains high, at 19.2%, very much the current concern of the Bank of Namibia.”
According to IJG, headline inflation slowed to just 2.9%, the lowest level in many years. “While much of the demand-pull inflation remains a lot higher than this often over 10%, the overall price pressure on Namibians is relatively low by historic standards.”
IJG was positive that the country’s foreign reserves would gain a much needed push from the country’s three new mines. Import cover according to Shiimi, approximated to 1.8 months. Said IJG, “foreign reserves appear to have stabilised, albeit at a relatively low level when assessed in Namibian Dollar terms. Also, this position is likely to recover further when the country’s new mines start exporting.”

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