CHAMWE KAIRA
Namibia experienced a dynamic month in August in the fixed income market, characterised by fluctuating demand levels and interest rate reductions that have influenced yields, latest financial statistics have shown.
The Bank of Namibia conducted five treasury bill auctions, two primary bond auctions, and completed the final GC24 switch.
Secondary trades on the Namibian Stock Exchange (NSX) saw an overall decline, although there was a notable increase in trading volumes for the GC27 bond.
Interest rates, which had been raised from 3.75% during the pandemic to a peak of 7.75% by July 2023, were reduced on August 14th when the Bank of Namibia’s Monetary Policy Committee decided to lower the repo rate by 25 basis points. This adjustment brought the repo rate down to 7.50% and the prime lending rate from 11.50% to 11.25%.
Simonis Storm Securities said in its analysis that the repo rate adjustment resulted in yields on Treasury Bills (TBs) dropping by an average of 20 basis points in the subsequent auction, reflecting strong market participation with high volumes tendered.
Although bond yields also decreased, the market response was more subdued compared to the immediate impact seen on short-term debt instruments, the report added.
With borrowing costs remaining relatively high, this recent rate cut is expected to provide some relief to households, particularly as private sector credit extension has been sluggish, the report said.
Looking ahead, Simonis said there is potential for another rate cut in Namibia before the end of the year. The recent adjustment has widened the interest rate differential between Namibia and South Africa to 75 basis points, yet it is anticipated that South Africa may also implement a rate reduction in response to similar economic pressures.
Simonis believe that the current restrictive monetary policy in South Africa is hindering economic development, as reflected in the modest GDP growth rate of just 0.6% for 2023. The unemployment rate has also risen, reaching 33.5% in the second quarter of 2024, up from 32.9% in the first quarter. High borrowing costs continue to be a significant barrier to economic expansion, with the repo rate currently set at 8.25%. In addition, private sector credit extension exhibited sluggish growth of 3.5% in July, down from 4.3% in June, it noted.
Looking ahead, forecasts for 2024 suggest that the economy could achieve a growth rate of 1%, assuming supportive monetary policy adjustments and continued improvements in the energy sector.
In the second quarter of the year, South Africa recorded a GDP growth of 0.4%, indicating that the forecasted growth rate remains within reach.
