CHAMWE KAIRA
Namibia’s inflation outlook has become increasingly uncertain as rising fuel costs and geopolitical tensions threaten to place renewed pressure on households and businesses, even as private sector credit growth showed signs of improvement in April.
According to FNB Namibia’s latest Private Sector Credit Extension report, headline inflation accelerated to 3.1% year-on-year in April, up from 2.1% in March, largely driven by higher transport costs following fuel price increases.
FNB Namibia Graduate Analyst Ndateelela Amukuhu said the increase was largely anticipated and reflected supply-side pressures linked to ongoing tensions in the Middle East.
The report warns that inflationary pressures are likely to persist into May following another round of fuel price hikes, adding further strain on consumers already grappling with elevated living costs.
While a projected pause in fuel price adjustments during June could provide some relief, the inflation outlook remains highly dependent on developments in the Middle East.
Any escalation of the conflict could push transport costs even higher and trigger broader increases in food prices, intensifying pressure on household budgets and squeezing business profitability.
“Any further escalation is likely to further lift transport costs and spill over into food prices, intensifying household expenditure pressures while also compressing business margins,” the report noted.
The inflation risks come at a time when households are increasingly relying on short-term borrowing to meet day-to-day expenses.
Household credit growth edged up to 4.2% in April from 4.1% in March, driven primarily by a sharp increase in overdraft lending.
Overdraft growth accelerated to 5.4% year-on-year in April from just 0.5% in March, suggesting that many households are turning to short-term credit facilities to cope with rising living costs rather than financing long-term purchases.
FNB warned that inflation, combined with subdued wage growth, could continue to erode purchasing power and limit consumer spending throughout the year.
“Elevated living costs, coupled with rising inflation, continue to pose a risk to further eroding purchasing power,” the report said.
As a result, household credit growth is expected to remain subdued, averaging around 3% during 2026.
The inflation outlook is also shaping expectations for monetary policy.
The Bank of Namibia kept the repo rate unchanged at 6.50% in April, maintaining a cautious stance amid global uncertainty and rising imported inflation risks.
Following a recent interest rate increase by the South African Reserve Bank, the interest rate gap between Namibia and South Africa widened to 50 basis points, increasing pressure on the Bank of Namibia to preserve monetary stability and protect the currency peg.
FNB said the central bank is likely to maintain its prudent approach as geopolitical risks and global financial market volatility continue to present upside risks to inflation.
The extended pause in interest rates means borrowing costs are likely to remain elevated for longer, potentially limiting demand for credit despite recent improvements in lending activity.
Overall private sector credit growth rose to 4.8% year-on-year in April from 4.3% in March, marking the strongest expansion since the beginning of the year.
The increase was largely driven by a rebound in overdraft lending by both households and corporates, particularly within the mining sector.
However, FNB noted that the composition of credit growth remains a concern, as borrowing is increasingly concentrated in short-term facilities rather than longer-term investment and expansion.
The report concludes that while credit growth has strengthened, inflationary pressures, high borrowing costs and economic uncertainty are likely to keep both consumer and business activity constrained in the months ahead.
