Namibia May Still Raise Interest Rate to Curb Household Debt

Namibia may have to raise its benchmark interest rate to contain surging household borrowings and safeguard the economy, Central Bank Governor Ipumbu Shiimi said.

“We don’t want consumptive credit to get out of control, it’s not good for households, commercial banks themselves and can have ramifications for the entire economy,” Shiimi told reporters today in the capital, Windhoek. “The only instrument the bank has is the monetary policy.”

The central bank left its benchmark rate unchanged at 6 percent today, after raising it by 25 basis points at a meeting on August 20. The southwest African nation said its import bill rose 33 percent in the first eight months of the year as trade deficit widened.

Household loans as a share of disposal income rose to 87 percent at the end of 2013 from 84 percent six months earlier, according the the central bank.

Rising borrowings point to Namibian “households being very insensitive to interest rate decisions,” Shiimi said. “We can also look at other measures that can slow down consumptive credit. It’s not only interest rates we will have to consider.”

Luxury Goods

Growth in private sector credit rose 15.5 percent in the first eight months of 2014 compared with 14.2 percent for the same period a year earlier. Overdrafts, loans, advances and installment credits make up most of the borrowings, according to Shiimi.

Consumers are taking loans to finance the purchase of non-productive goods such as cars and luxuries, with automobiles accounting for 13 percent of the import bill of 57.5 billion Namibian dollars during the first eight months of 2014, according to the central bank.

Exports rose 13.3 percent to 37.8 billion Namibian dollars, during the same period, causing the trade deficit to widen to 5.6 billion dollars during the second quarter from 3.5 billion dollars during the same period in 2013.

“The bank remains concerned about the importation of luxury goods, which continue to exert pressure on the international reserves of the country,” Shiimi said. “Despite this pressure, international reserves remain sufficient to meet the country’s foreign obligations.”

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