Category Archives: Economic Research

Economic Research

NCPI October 2021

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The Namibian annual inflation rate rose to 3.6% y/y in October of the back of a 3.5% y/y increase in prices in September. Prices in the overall NCPI basket rose by 0.2% m/m. Year-on-year, overall prices in five of the twelve categories rose at a quicker rate in October than September, five categories experienced slower rates of inflation and two categories posted steady inflation. Prices for services rose by 2.4% y/y and prices for goods rose by 4.5% y/y.

Prices in the transport category increased by 0.7% m/m and 10.7% y/y. As such, transport was the largest contributor to annual inflation in October, contributing 1.5 percentage points to the total 3.6% y/y inflation rate. Prices in all three of the sub-categories recorded increases on an annual basis. Vehicle prices increased by 10.4% y/y, public transport costs increased by 3.5% y/y and prices in the sub- category “operation of personal transport equipment” increased by 13.6% y/y.  A 22.4% y/y increase in the price of petrol and diesel is responsible for much of this increase. This increase is due partially to base effects as the price of fuel decreased by 11.3% m/m and 12.5% y/y in October 2020. A global shortage in oil supply is the other major factor contributing to increases in the price of fuel.

The last year and a half have seen taxi fares at their most volatile. The price of taxis increased by 3.9% y/y in October. This comes after two-consecutive months of 8.7% y/y decreases. Looking further back, in May 2020 taxi fares rose by a remarkable 13.6% m/m, held steady for a few months and then declined by 11.3% m/m in October 2020, according to the Namibia Statistics Agency. Another month-on-month spike in June 2021, a 14.6% m/m increase, was followed by a 9.9% m/m decrease in August 2021. This volatility has led to uncharacteristic oscillations in the year-on-year price movements of taxi fares.

Food & non-alcoholic beverages was the second biggest contributor to the annual inflation rate in September, contributing 1.0 percentage point. Prices in this basket increased by 0.9% m/m and 5.2% y/y. All sub-categories registered price increases on a monthly basis. Additionally, all sub-categories except for one, vegetables & tubers, registered price increases on a yearly basis. The largest year-on-year price increases came in the oils & fats and fruit categories, with increases of 16.9% y/y and 15.4% y/y respectively.

Inflation for the rest of the categories were relatively subdued, with the miscellaneous category being the third largest contributor to October’s annual inflation rate, increasing by 0.1% m/m and 6.6% y/y. Surprisingly, the category alcoholic beverages & tobacco was not amongst the largest contributors to annual inflation in October. Prices for alcoholic beverages decreased by 0.9% m/m and 0.1% y/y while prices for tobacco products increased by 0.7% m/m and 5.9% y/y.

The 3.6% y/y annual inflation rate is in line with IJG’s average inflation forecast for the year. IJG’s inflation model predicted that annual inflation would be 3.5% y/y in October. Inflation risks globally and in Namibia remain to the upside. Our model currently estimates that inflation will rise to 3.8% y/y in November and 4.0% y/y in December.  Average inflation for 2022 is forecast at 3.9% y/y. The estimated upper bound for average annual inflation in Namibia for 2022 is 5.0% y/y. Should the value of the rand continue to deteriorate, and if oil prices continue to rise, the forecast will inevitably trend towards the upper bound.

PSCE – September 2021

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Overall

Private sector credit (PSCE) increased by N$799.6 million or 0.76% m/m in September. PSCE grew by 2.74% y/y in September, up from August’s increase of 1.85% y/y. On a 12-month cumulative basis, N$2.82 billion worth of credit was extended to the private sector. This represents an 89.9% y/y increase from last September’s 12-month cumulative issuance figure. This increase is due to base effects and does not indicate meaningful, above-trend growth in PSCE. Instead, PSCE growth has remained relatively stable, recording around 2.2% y/y growth over the past few months after faltering for much of 2020, hence the intermittent large year-on-year increases. Individuals continue to take up the majority of this cumulative issuance.

Credit Extension to Individuals

Credit extended to individuals decreased by 0.18% m/m but increased by 3.71% y/y in September. On a month-on-month basis, only one sub-category of loans and advances increased, namely mortgage loans by 0.1% m/m. The other two subcategories of loans and advances; namely other loans & advances and overdraft, shrunk in September by 0.7% m/m and 3.2% m/m respectively. Instalment credit grew by 0.2% m/m. On a year-on-year basis all subcategories of loans & advances, and instalment credit registered increases in September. Specifically, mortgage loans increased by 4.3% y/y, other loans & advances increased by 2.3% y/y and overdrafts grew by 4.8% y/y. Instalment credit issued to individuals grew by 1.3% y/y in September, marking the sixth straight month of year-on-year increases in this category. Prior to this streak, instalment credit shrunk year-on-year for the previous 20 months (back to August 2019). Despite structurally making up only 10-12% of the total credit extended to individuals, this sustained up-tick in instalment credit is perhaps an indicator of improving consumer demand. But again, this is a minor increase in a minor category and overall growth of credit extended to individuals remains sluggish.     

Credit Extension to Corporates

Credit extended to corporates grew by 2.29% m/m and 1.81% y/y in September. Total corporate loans & advances grew by 2.0% y/y in September, driven by increases in mortgage loans as well as other loans & advances with both sub-categories recording growth of 2.8% y/y. Overdrafts decreased by 0.3% y/y and instalment credit grew by 0.2% y/y. The month-on-month increase in corporate credit extensions was particularly strong in September, with the 2.29% m/m increase representing the largest month-on-month increase in 2021. This is due partially to base effects as August saw one of 2021’s largest month-on-month decreases in credit extensions to corporates.

Banking Sector Liquidity

The overall liquidity position of Namibia’s commercial banks decreased in September, falling by N$398.3 million to an average of N$1.40 billion. The BoN attributes this to government borrowing activities resulting from a large September bond auction. Despite the decrease in liquidity, the total balance of repos outstanding decreased during September. The repo balance fell to N$907.7 million at the end of September after starting at N$1.27 billion.

Reserves and Money Supply

Broad Money Supply (M2) contracted by N$2.93 billion or 2.3% y/y in September, according to the BoN’s latest monetary statistics. The money supply also decreased by 0.1% m/m and now stands at N$122.9 billion compared to the N$123.1 billion at the end of August. The BoN made a significant revision to the international reserve balance for the month of August in the latest data. Previously the stock of international reserves was seen to decrease by 4.1 % m/m in August to N$40.9 billion. As per the latest data, the stock of international reserves for August instead increased to N$44.9 billion. Using this revised estimate, the BoN’s stock of international reserves rose by 2.1% m/m to N$45.9 billion in September. While the wording is unclear, the Bank of Namibia has attributed the increased level of international reserves (read – the August adjustment) to the IMF’s allocation of Special Drawing Rights (SDR) in August.  

Outlook

PSCE growth in September remained subdued and broadly in line with the 2021 trend. We expect the Bank of Namibia’s MPC to keep interest rates at their current level for the remainder of the year, but pressure is growing on the South African Reserve Bank to increase interest rates. This is because inflation is hovering around the 5.0% mark, and with inflation risks to the upside, the SARB may need to hike rates to keep inflation below their 6% y/y targeted upper-bound. The SARB’s MPC meets on 18 November with a rate hike looking more likely than at any other point in the year so far. Should the SARB raise rates, the BoN will surely follow. While this will likely have a negative impact on PSCE, there is argument to be made that because PSCE growth has been, and remains, so subdued that perhaps a rate hike won’t make all that much difference.