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BoN cuts Repo Rate
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21 February 2020
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In a move that is expected to bring much needed relief to indebted Namibian households and companies, the Monetary Policy Committee of the Bank of Namibia (BoN) decided to cut the Repo rate by 25 basis points to 6.25 percent.
Bank of Namibia Governor, Iipumbu Shiimi said the cut, which comes after the South African Reserve Bank reduced its interest rate by the same margin in January, is aimed at supporting the domestic economy and to maintain the one-to-one link between the Namibia Dollar and the South African Rand.
Diederik Kruger, Head of Funding and Liquidity Management at Bank Windhoek said the reduction in interest rates will contribute towards resuscitating the domestic economy and bring much needed relief to consumers.
“It will also be sufficient to protect liquidity in the local market and lower the government’s cost of funding at the shorter end of the curve. The SA Reserve Bank also lowered their interest rate in January 2020. Hopefully the decrease in interest rates and lower house prices will help new or first-time buyers to own a house of their own. We recommend that clients make use of this opportunity to pay off their debt quicker or start saving to give them a buffer against unforeseen expenses,” Kruger said.
In response to the announcement Bank Windhoek has announced the reduction of its Prime Lending Rate by 0.25% from 10.25% to 10.00%. The Mortgage Lending Rate will decrease from 11.25% to 11.00% Ruusa Nandago, FirstRand Namibia Economist, however, said the BoN decision will not be sufficient to drive meaningful economic growth.
“Theoretically, interest rate cuts stimulate the economy through lower borrowing costs, which induce borrowing and investment. While the recent rate cut brings moderate relief to indebted households and corporates, we do not believe it will be sufficient to drive meaningful economic growth in the current environment characterised by low confidence. This view is corroborated by real sector data releases following the repo rate cut in August 2019, which did not show signs of significant improvement,” she said.
“It is our opinion that the onus to stimulate meaningful economic growth does not lie in the repo rate adjustment alone, given the structural nature of the low growth environment. Rather, complementary policies that support growth and employment creation should be put in place for demand growth to systematically respond to monetary policy action. This sentiment was echoed by the central bank Governor, who emphasised that interest rates are already at historically low levels.”
 
 
 
 
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