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Namibia CPI – April 2016

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Inflation April 2016

The Namibian annual inflation rate increased further to 6.6% in April. On a month on month basis, prices continued to rise, up 0.6% after the 0.8% uptick seen last month. On a year on year basis, eight of the twelve basket categories grew at a quicker rate in April than in March, pushing up overall inflation. The biggest contributor to inflation on a monthly basis were price increases of food and non-alcoholic beverages once again, while on an annual basis housing and utilities price increases have contributed the most to inflation.

Inflation April 2016 2

On a month on month basis price increases in the food and non-alcoholic beverages basket category have largely been driven by fruit and vegetables price increases as well as increases in milk, eggs and cheese prices. Annual inflation in the food and non-alcoholic beverages basket category jumped to 11% in April from 9.7% in March. This basket category has experienced rapid inflation over the last three months as the Southern African region continues to suffer from adverse climatic conditions, depreciation in the Namibian dollar as well as rebasing effects due to the impact of low oil prices on prior periods.

Alcoholic beverages and tobacco as the fourth largest basket category made the second largest contribution to monthly inflation followed by furnishings household equipment and routine maintenance costs. On a year on year basis price increases on alcoholic beverages and tobacco slowed from 7.8% in March to 7.1% in April. Alcoholic beverages and tobacco inflation has been consistently above the average inflation figure for most of the last five years when looked at on an annual basis, more consistently so than almost any other basket category.

The annual inflation rate for the category housing, water, electricity, gas and other fuels was stable at 7.5% in April, after spiking from an average rate of well below 3% in 2015, to 7.6% in January this year. Rapid price increases have been seen in this basket category mainly as a result of increases in inflation for rentals and other dwellings. Price increases for rentals and other dwellings have been extremely low for a number of years, as reported by the NSA, and the sudden spike at the beginning of the year has largely resulted in the elevated level of annual inflation we are currently seeing.

The annual rate of inflation in the transportation basket category, the third largest category, slowed further in April to 2.8% from 4.3% in March. Much of this decrease was as a result of fluctuations in the price of oil during the base period as well as currency volatility during April. We expect to see a pickup in transportation inflation due to recent fuel price increases in May as well as base effects coming through on the oil price. This could well drive overall inflation higher still in coming months.

Inflation April 2016 3

Going forward we expect a further uptick in inflation in May largely due to base effects caused by the drop in oil prices last year as well as more recent currency movements. Adverse effects of the drought currently affecting the region should lead to further increase in food inflation in the coming months, helping to drive overall inflation higher. Namibian CPI has now risen to a level above that of neighbouring South Africa, a situation that we regard as a more accurate reflection of actual inflation pressures experienced by the residents of Namibia. We would expect this relationship to hold going forward.

PSCE – April 2016

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Total credit extended to the private sector increased by N$241.8 million or 0.29%, in April, taking total credit outstanding to N$83.9 billion. On an annual basis PSCE growth increased by 12.4% in April compared to 13.0% in March. A total of N$9.3 billion worth of credit has been approved over the last 12 months with N$1.8 billion worth of credit being approved in 2016 thus far. Of this N$9.3 billion worth of credit issued during the last 12 months, approximately N$3.8 billion was taken up by businesses, while N$4.9 billion was taken up by individuals.

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Credit extension to households

Credit extension to households expanded by 0.6% on a monthly basis and 11.8% on an annual basis in April. Credit extension to households has continued to slow as interest rate hikes change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small. We do expect to see further rate hikes going forward and this should lead to a continuation of the slowdown of credit extension to households and possibly contractions on a monthly basis.

During the month household mortgage loans expanded by 0.6% month on month and 12.1% year on year, down from 0.7% month on month and up from 11.5% year on year and continue to make up the majority of credit extended to households. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing, from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals.

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Instalment credit, the second largest component of loans extended to individuals, grew at 12.6% year on year in April, up from 12.1% in March, although well off the long term average growth for this component of PSCE. On a month on month basis instalment credit grew by 0.1%, down from 0.4% in March. The lackluster instalment credit growth on a yearly basis can be attributed to tighter monetary policy as well as a slowdown in credit extension by credit providers due to less than ideal liquidity conditions.

PSCE – April 2016

PSCE – April 2016

Credit extension to corporates

Credit extension to corporates registered a much lower but positive growth of 0.1% from 0.2% on a month-on-month basis and an annual growth of 12.9% year-on-year in April, down from 15.2% in March. Credit extended to corporates during April was again primarily driven by exceptional growth in mortgage loans, up 15% year on year and 0.3% month on month. Instalment credit extended to corporates grew at a rate of 3.9% year on year and declined 0.6% on a month on month basis, while overdraft facilities grew by 7.4% year on year and 3.3% on a month on month basis. Although corporate credit has been growing at a far quicker rate than credit extended to individuals, the relatively low base from which this growth stems means that the majority of private sector credit still sits with the individual.

Reserves and money supply

Foreign reserves decreased slightly during April. The decrease primarily came as a result of net government payments. International reserves stood at N$24.661 billion at the end of April, down from N$24.910 billion in March.

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Outlook

Private sector credit extension has slowed considerably on a year to date basis as a result of the current interest rate hiking cycle. Should we see further rate hikes in the SA market due to above target inflation and a volatile and depreciating Rand, we will see further rate hikes from the Bank of Namibia as well. This will put further pressure on the consumer which will in turn affect corporates. Further impacting the current economic climate is the drought experienced in the central region. Water restrictions may limit business activities and deter further investment, all of which has a negative impact on credit extension. We thus expect PSCE to continue to slow down, possibly topping out in the not too distant future.