Shiimi curtails consumer spending
In an unprecedented move, the Bank of Namibia this week announced an increase in the repo rate to 5.75%, up 0.25%, with more increases expected throughout the course of the year.
According to Bank of Namibia Governor Ipumbu Shiimi, inflation had shown an upward trend in recent months with annual inflation rising from 4.9% in December 2013 to 6.1% in May 2014, mainly driven by food and transport inflation with expectations that inflation will hover around the 6% mark for 2014. “Inflation has shown an upward trend in recent months. Similarly, the annual growth rate in domestic private sector credit has been increasing since December 2013,” said Shiimi as he gave a synopsis of the factors that warranted a rate increase. He also added that the rapid growth in imports of vehicles partly financed by instalment credit was cause for concern. The annual growth in domestic private sector credit increased 15.8% in April 2014 as compared to 14.3% in December 2013. Growth in private sector credit resulted from a higher demand by both individuals and businesses he noted with a rise in household credit mainly attributed to instalment credit and overdraft loans. Upon enquiry, Shiimi said, “The commercial banks have found loopholes to finance individuals who cannot afford vehicles.
We are concerned about the widening deficit between imports and exports largely driven by hire instalments. For the first quarter of the year, the trade deficit stood at N$6.3 billion and was up 18.5% for the comparative period first quarter 2013. In value terms, this amounts to N$2 billion which is leaving the country,” referring to the total value of imported vehicles. For the period January to April 2014, 3,024 passenger vehicles were sold in Namibia according to figures released by the National Association of Automobile Manufacturers South Africa. Said Shiimi, “We have brought this to the attention of the relevant authorities,” referring to the Ministry of Trade and Industry. “We want to come up with laws that will control the credit dispensed. Draft legislation he added was being finalised with plans afoot to establish a credit bureau. “It is no longer business as usual,” he added. The annual growth in domestic private sector credit increased 15.8% in April 2014 as compared to 14.3% in December 2013. Growth in private sector credit resulted from a higher demand by both individuals and businesses he noted with a rise in household credit mainly attributed to instalment credit and overdraft loans. When caught for comment, FNB Chief Economist Daniel Motinga expressed his surprise at the rate hike and said: “It caught me off-guard as I only expected a rise in August. I expect another increase of 0.25% when the Monetary Policy Committee sits down in August again.”