Standard Bank expects 25 bps interest rate hike

STANDARD Bank Namibia expects the Bank of Namibia to hike its key lending rate by 25 basis points (bps) next week, Standard Bank’s manager of economics and market research Mally Likukela said yesterday.The central bank’s repo rate is currently at 6,50% with prime at 10,25%.

He said the decision will impact will ‘impact everyone who has a home mortgage, car loan, savings account or money in the stock market.

He said with rates hikes, things will get better for savers and a little harder for borrowers.

“For a long time in Namibia, savings and money market accounts had offered very low interest on average ranging between 4,5% and 4,9%,” he said.

Likukela said following a period of low interest rate that came as a result of the financial crisis, people who put their money in the bank endured a period of disappointment and anguish as they have gained next to nothing from their savings.

“But given the lower inflation rate, 3,7%, surely savers can realise some reasonable returns from their savings. This is definitely the right time to place excess money in the savings and money market accounts and stand a chance to realise reasonable returns,” he said.

In the event of a hike, he said commercial banks will be the biggest winners as they will earn more attractive ‘spreads.’

He said consumers may not only cut back on using credit cards, but also on buying homes and property.

“Most homebuyers use mortgages to finance their homes, and if mortgage rates increase, which will happen with a general rise in interest rates, the cost of owning a home will also climb,” he said.

Likukela said the uptake in the cost of home ownership will reduce demand for property. Housing prices have risen, but mortgage rates on both fixed and variable loans have remained somewhat lower over the past few years, he said.

He said a low interest rate environment helped boost home prices as the favourable mortgage conditions allowed more people to buy homes and enabled existing homeowners to refinance older, higher loans and free up cash flow.

“With the repo rate hike and all market rate poised to go up, demand for new homes will fall and eventually home prices will also fall. This will be the right time for aspiring new home owners to enter the market,” he said.

Currently, the market leader in the sector controlling about 40% of the market share has its mortgage book in excess of N$14 billion out of a combined loan book of more than N$40 billion as at end of December 2015.

“Following the announcement, it is expected, without doubt, that rising interest rates will push up borrowing and mortgage servicing cost for homes. Home owners will thus feel the pinch in no time,” he said.

Likukela said auto owners will not be spared from the wrath of the rising interest rates too. Total instalment credit is currently standing at more than N$12 billion from around N$10,5 billion at the end of 2014.

He further said for job seekers, a drop in business investment as a result of a rate hike is particularly bad news.