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Steady lowering of interest rates expected

Steady lowering of interest rates expected

Zorena Jantze
AFTER the Bank of Namibia (BoN) cut the repo rate with 25 basis points to 6.50% from 6.75%, an analyst from Capricorn Asset Management (CAM) is predicting that Namibians can expect the next cut in interest rates in early 2020.
The new repo rate cut means that Namibian banks will lower their Prime Rates as well, from the current 10.5% to 10.25%.
Floris Bergh, chief economist at CAM, stated that the cut in the repo rate should afford highly indebted consumers a little relief in debt repayments.
He added that in setting the rates on a lower trajectory, the BoN took note of expectations of a weakening global economy with a concomitant down-draft in yields.

ECONOMIC COMMENTARY: Floris Bergh from CAM. Photo: Contributed

“It would appear that the local economic malaise worsened further over the course of the year so far. This means that Namibia is facing another year of contraction in 2019. Waning support from the global economy means that 2020 is unlikely to be much better,” Bergh stated.
He further added that Namibia is facing a shallow cutting cycle that might bring the Prime Rate down to the lows of 9.25%, last seen in May 2014 before the latest hiking cycle started.
“We are facing a tame inflation trajectory, which means that the real interest rate (the difference between Prime and inflation) will remain quite high, even if interest rates drift lower. The BoN is likely to wait out the October updates of the state of government finances in Namibia and SA with its concomitant impact on credit worthiness,” Bergh explained.
He concluded that the speed at which other global Central Banks relax their monetary policy stances will also have bearing.
All-in-all, a steady lowering of the Bank rate over the next 24 months by another 1% is expected.
This means four cuts by late 2021.
Also commenting on the subject, local economist, Klaus Schade, cautioned that private households are already highly indebted and face uncertainties regarding job and income security and should be cautious taking up additional loans.
He further added that government could benefit through lower debt financing costs if the repo ratecut translates into lower yields for Treasury Bills and Bonds.
The rate cut might not, however, be aggressive enough to encourage additional investment Schade opined.

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