BoN repo rate increases

17 Feb 2016 14:10pm
WINDHOEK, 17 FEB (NAMPA) – The central bank Wednesday increased the repo rate by 25 basis points from 6.50 per cent to 6.75 per cent, which means local banks’ interest rates are expected to increase.
Bank of Namibia (BoN) Governor, Ipumbu Shiimi made the announcement during a media briefing here, following a BoN Monetary Policy Committee (MPC) meeting held on Tuesday.
Repo rate refers to the rate at which the central bank lends money to commercial banks such as First National Bank (FNB) of Namibia, Standard Bank Namibia, Bank Windhoek and Nedbank Namibia in the event of any shortfall of funds.
Shiimi said the decision was taken to align interest rates within the Common Monetary Area (CMA), which links South Africa, Namibia, Lesotho and Swaziland into a monetary union. In late January 2016, South Africa’s repo rate was increased to 6,75 per cent in response to rising inflation, while in August 2015, Swaziland’s repo rate was increased to 5,75 per cent, which left homeowners with mortgages worried about the interest rate on their loans.
Shiimi said the BoN is worried about money flowing out of the country and local economy.
“This decision was necessary to avoid possible capital outflows, which could put pressure on the country's reserves,” he said.
While the MPC welcomes the continued slowdown of growth in instalment credit, meaning Namibians appear to be making less debt on instalment credit, Shiimi said the recent significant increases in other loans and advances are a concern. Instalment credit refers to short-term finance for luxuries such as clothes, cars, mobile phones, televisions, washing machines and other household items.
With a higher repo rate, the BoN is expecting Namibians to save more money.
The governor stressed it is expected that deposit-taking institutions will also increase deposit interest rates by the same margin, thus encouraging saving by having deposits gain interest over time.
The BoN in 2015 raised concerns that Namibian households appear keen for credit but most importantly, for unproductive and imported luxury goods on instalment agreements, which puts the country’s foreign reserves at risk. The repo rate was in July 2015 increased to 6,50 per cent in response to growth in household credit.