Windhoek - The Bank of Namibia's decision to increase the repo rate by 50 basis points, from 7.25% to 7.75%, with immediate effect, has left many Namibian consumers struggling to survive. The repo rate is the lending rate offered by a central bank to commercial banks for their short-term funding requirements, and commercial banks pass on the interest rate levied by the central bank to their consumers through interest charges on loans. The increase will impact Namibian consumers who rely on debt to survive, making it more expensive for individuals and businesses to borrow money, which can lead to a decrease in demand for credit.

The governor of the Bank of Namibia, Johannes !Gawaxab, stated that the increase was necessary to safeguard the one-to-one link between the Namibian Dollar and the South African Rand, contain inflationary pressures, stem their associated second-round effects, and anchor inflation expectations. He also urged consumers to change their spending behaviors due to the unfavorable interest rate environment.

However, this move will severely impact Namibian consumers who rely on debt to survive. The household sector in Namibia accounts for the majority of private sector credit extended by the banking sector over the past five years, and households’ debt servicing costs almost doubled from 2020 to 2022, according to the financial stability report for 2022 released by the Bank of Namibia and the Namibia Financial Institutions Supervisory Authority.

For analyst Ronald Joma from Equity Axis who is currently in Namibia, the bank has set debtors up for a fall. "Consumers would do well to drive a stake through notions of incurring obligations in this climate. This rise piles pressure onto households stretched taut by double-digit debt service costs,” he said. Joma argues fiscal fixes best remedy supply-side shocks in tethered economies, supporting sectors slammed by factors like a 12% rand rout versus the dollar.

That External vulnerabilities have the economy in their thrall is incontrovertible. Greylisting, blackouts and Kremlin coziness have swooned the rand, transmitting turmoil to Namibia.

Yet the governor gainsays those crying "check the supply side". We have a mandate to protect the peg, !Gawaxab contends. Differing even slightly from South Africa would foment arbitrage. So banks burden borrowers and fetter growth to safeguard the link. 

Joma terms this “skewed logic that shall slow activity by denting demand.” But protectionism reigns as policymakers insist they wield but one tool, rates, to achieve stability. They pledge, though, to explore “solutions” to keep roofs over heads, claiming banks share in shouldering the load. Little solace for those set to lose their homes, spotlighting the human toll of technocratic parlance like “financial stability”.

The increase in interest rates could also have a dampening effect on economic growth, as consumption and investment may slow down due to reduced borrowing and spending. The Economic Association of Namibia (EAN) also warned that higher interest rates can affect the affordability of new loans, making it more expensive for individuals and businesses to borrow money.

Despite the concerns raised by economists and consumers, the Bank of Namibia remains firm on its decision to raise the interest rates to safeguard the currency peg and contain inflationary pressures. The governor also expressed empathy for people losing their houses due to the increase in debt servicing costs and noted that the banks have been trying to do everything they can to keep owners in their houses rather than foreclosing on them.This third hike in six months signals determination to break the back of price pressures. The increase, coming atop April and January moves, means a cumulative 100 basis points added to costs this year.

In conclusion, the Bank of Namibia's decision to raise interest rates may have been necessary to safeguard the currency peg and contain inflationary pressures, but it comes at a significant cost to Namibian consumers who rely on debt to survive. The increase in debt servicing costs may lead to more repossessions and hardship for already struggling households. It remains to be seen how the Namibian economy will adjust to the higher interest rates, and whether the move will have the desired effect of containing inflationary pressures.

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