Interest rates are likely to remain on hold at 6,75 percent over the medium-term because of the recent downgrades of Namibia’s credit rating, economic analysts have said.
On 11 August, Moody’s Investors Service downgraded Namibia’s long-term senior unsecured bond and issuer ratings to Ba1 from Baa3 and maintained a negative outlook.
Last month, Fitch Ratings downgraded Namibia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BB+’ from ‘BBB-’ with a stable outlook.
Megameno Shetunyenga, an Economist at Simonis Storm Securities said because of the over-indebted of consumers, no benefits will be derived from an interest rates point of view.
This comes as the Bank of Namibia (BoN) this week left its repo rate unchanged at 6,75 percent.
She said fuel prices, which increased by 50 cents per litre this week, after an increase in November, will also add additional pressure to the consumer.
“The increase comes amid already depressed consumers and economic recession. Consumers should tighten their belts going into this festive season and as we welcome 2018. Tough times are ahead,” Shetunyenga said.
She said consumers are currently facing heavy fuel inflationary pressure, but respite will come from a moderation in food inflation rather than interest rate cuts over the short to medium term.
“We do not foresee a recovery over the short-term, as consumers remain indebted, interest rate cuts are likely to be halted while services inflation (specifically fuel) continues to go up,” she said.
“Namibia imports most of what it consumes and the main negative effect may result from a currency depreciation (rand) if South Africa gets downgraded by Moody’ next year. Import inflation would further put pressure on households.”
BoN Governor, Iipumbu Shiimi, said this week that annual inflation had averaged 6,4 percent during the first ten months of 2017, compared to 6,6 percent during the same period in 2016.
On a monthly basis, however, inflation decelerated to 5,2 percent in October from a peak of 8,2 percent in January, mainly driven by lower inflation for food and non-alcoholic beverages.
Shetunyenga said businesses will be less likely to hire more staff and may even cut down on the number of employees to reduce costs due to the tough economic environment.
She added that unsecured lending has been increasing and is expect to continue over the festive season and in 2018. Ngoni Bopoto, a Research Analyst at Namibia Equity Brokers said the main impact of a rating downgrade will most likely be on the cost of public debt which will have an impact on households since the taxpayer funds the fiscus.
“It appears that the increase in bond yields since early last year may have already priced in this year’s downgrades to sub-investment grade, but we are still looking at the numbers and monitoring market sentiment to confirm this,” Bopoto said.