Namibia’s Shiimi Says Shopping Spree May Merit Rate Increase

The Bank of Namibia may need to raise its benchmark interest rate further and take other actions to curb a consumer “spending spree” that has caused household debt levels to climb, Governor Ipumbu Shiimi said.

The central bank is assessing how borrowers react to two policy-rate increases totaling 50 basis points, or half a percentage point, since June, which raised the benchmark rate to 6 percent, Shiimi said in an interview on Aug. 25 at his office in the capital, Windhoek.

“As we watch the credit numbers unfold, the scope to raise rates could be there,” Shiimi said. “If we think the situation on the ground warrants a decision, the interest rate will have to be increased. We have to watch it over a period of time to get a discernible trend.”

Surging credit demand in the southern Africa nation, especially to pay for luxury items and vehicles, has led to an increase in imports, putting pressure on declining foreign reserves. Namibia raised its repurchase rate by 25 basis points on Aug. 20, to help curb consumer debt estimated by the central bank at 87 percent of income. Credit growth by homes and businesses advanced 15.3 percent in the first half of this year, from 13.9 percent in the latter half of 2013. That compares with 8.69 percent growth in credit demand in June in neighboring South Africa, Africa’s second-largest economy.

Namibia’s Monetary Policy Committee in June raised the key lending rate for the first time in more than six years. The committee is next scheduled to meet on Oct. 21.

Scarce Forex

The central bank is also considering other unspecified measures to curb the “spending spree, wasting foreign currency which is scarce,” said Shiimi. “Raising interest rates is just one part of the solution. People are borrowing and spending money to purchase luxury goods, spending scarce international reserves. We have to take some steps,” he said.

The central bank has advised that the government needs to tighten the laws on credit, Shiimi said in June.

The total number of vehicles sold during the first four months of the year rose more than 50 percent from a year earlier, with a value of 2.2 billion Namibian dollars ($206 million) in a total import bill of 16 billion Namibian dollars, according to the latest data provided by the central bank.

The country’s foreign-exchange reserves have declined 15 percent since the start of the year to 15.9 billion Namibian dollars in June, according to the central bank.

Economic growth, forecast at 5.4 percent this year compared with about 4 percent last year, will be supported by investment to expand and upgrade the country’s infrastructure, including the port, railway and road networks, said Shiimi.

Shipping Hub

The country, with plans to build rail links and develop a dedicated port terminal for bulk and mineral exports from fellow Southern African Development Community nations, is trying to attract more of the region’s shipping traffic, he said.

Namibia, located on the southwest coast of Africa, is the world’s biggest offshore diamond miner and the fifth-largest uranium producer.

The inflation rate, which fell to 5.6 percent in July from 6.1 percent in June, is projected to remain at around 6 percent this year. Imported inflation is being contained because exporters of goods to Namibia are selling their products at low prices amid sluggish global demand, Shiimi said.

Namibia’s currency peg to South Africa, the country’s main source of imports, helps eliminate exchange-rate risks and drives two-way commerce, he said. The Namibian dollar has declined 1.1 percent against the U.S. currency this year, adding to a 24 percent slump registered last year. The currency gained 0.7 percent to 10.6077 per dollar by 8:38 p.m today in Windhoek. It is pegged to the South African rand.

“The financial sector is highly integrated and that supports trade between the two countries,” he said. “It also means we are able to attract investments from South Africa very easily.”

The country is moving ahead with plans to sell debt in the South African market during the fiscal year through March. The size and tenure of the bond will depend on appetite in the market, said Shiimi.

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