Asset managers chasing higher returns in SA
BoN announces jumbo repo rate hike
During the first five months of 2023, there was a capital outflow of N$10.1 billion from Namibia to South Africa.
The Bank of Namibia (BoN) announced a 50 basis points increase in the repo rate from 7.25% to 7.75%. That means the prime lending rates for local commercial banks will increase from 11% to 11.50%. Year to date, the central bank increased the repo rate by 100 basis points. Meanwhile, the South African Reserve Bank (SARB) increased the repo rate by 125 basis points year to date. The repo rate in South Africa currently stands at 8.25%, 50 basis points higher than in Namibia.
The differential in the repo rate partly led to a capital outflow of N$10.1 billion from Namibia to South Africa during the first five months of 2023, compared to N$7.75 billion in the same period last year.
The governor of the Bank of Namibia Johannes !Gawaxab revealed these figures yesterday at the third monetary policy announcement for the year.
Asset managers and retirement funds are chasing higher returns in South Africa because they can earn more in South Africa than in Namibia.
“We need to catch up and close that gap before it becomes a bigger problem,” he said.
!Gawaxab further noted the decision to increase the repo rate was to continue safeguarding the peg arrangement and anchoring inflation expectations, while simultaneously supporting the domestic economy.
The central bank projects inflation to average 6.1% in 2023. According to the Namibia Statistics Agency (NSA), inflation stood at 6.3% in May, compared to 5.4% and 6.1% recorded in May 2022 and April 2023 respectively. Year to date, inflation averaged 6.8%.
Outlook
IJG Securities says it is expected that the annual inflation rate in Namibia will gradually decrease in the coming months. This is primarily due to base effects impacting the transport category, as fuel prices are now only marginally higher compared to a year ago.
“However, if currency weakness persists, we could see upward price pressure on goods, resulting in a prolonged period of elevated inflation. The Bank of Namibia is expected to closely monitor these developments, and it may require implementing additional rate hikes beyond current expectations, similar to the situation observed in neighbouring South Africa.”
IJG’s inflation model continues to forecast a gradual deceleration in the annual inflation rate over the coming months, before ending the year at around 4.8%.
Living costs
According to Simonis Storm (SS), headline inflation has been on a consistent upward trend, recording an increase of 218.4% since January 2002, research by Simonis Storm (SS) shows.
Living costs have tripled since SS’ base year, making the consumer basket at least three times more expensive than it was in January 2002.
Inflation has decreased local spending power where N$100 in May 2023 is equivalent in value to N$31.41 in January 2002.
Over this period, the South African rand has depreciated by about 60.2% and would have also played a significant role in tripling Namibia’s consumer prices baskets over the last 20 years.
The analysts expect inflation rates to decrease for the remainder of 2023 due to base effects, despite new upside risks abounding.
“We also maintain our forecast of 5.9% for 2023 at this stage and expect to see lower inflation rates from June 2023 onwards,” SS [email protected]