PSCE – January 2019

Overall

Total credit extended to the private sector (PSCE) increased by N$180.1 million or 0.19% in January, bringing cumulative credit outstanding to N$97.1 billion. On a year-on-year basis, credit extended grew by 7.16% in January, compared to 7.37% in December. Cumulative credit extended to the private sector over the last 12-months amounted to N$6.48 billion. Individuals took up N$3.58 billion worth of credit over the last 12-month, corporates took up N$2.31 billion, and claims on the non-resident private sector accounted for N$598.1 million.

Credit Extension to Individuals

Credit extended to individuals increased by 0.3% m/m and 6.7% y/y in January, versus 0.7% m/m and 6.9% y/y in December. Mortgage loans extended to individuals increased by 7.7% y/y in January, in line with the increase seen in December. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 0.6% m/m and 18.3% y/y in January. Installment credit, which is quite often used to purchase new vehicles, contracted by 6.8% y/y. Household demand for overdraft facilities was quite strong in January, increasing by 2.3% m/m and 2.7% y/y, compared to the 1.8% m/m and 4.2% y/y increase seen in December.

Credit Extension to Corporates

Credit extension to corporates increased by 6.3% y/y in January, moderating slightly from the 6.5% y/y increase recorded in December. On a month-on-month basis, credit extension to corporates rose 0.1% after decreasing by 0.3% in December. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis remained depressed, contracting by 8.8% y/y in January. Leasing transactions to corporates declined further in January by 20.0% y/y. Overdraft facilities extended to corporates rose by 4.5% m/m and 11.4% y/y. Mortgage loans to corporates rose by 2.5% y/y, while other loans and advances increased by 28.1% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks fell by a hefty N$2.6 billion to reach an average of N$262.1 million during January from N$2.8 billion in December. According to the Bank of Namibia (BoN), the decline is attributable to corporate tax payments made at the end of December, as well as the usual slow spending from the Government during January each year. There has been an increase in use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s increasing from N$1.29 billion at the start of January to N$2.29 billion by month end. The use of the facility is a further sign that some banks are facing challenges in terms of liquidity.

Reserves and Money Supply

As per the BoN’s latest money statistics release, board money supply rose by N$7.3 billion or 7.6% y/y in January, but decreased by N$622.4 million or 0.6% m/m. Foreign reserve balances fell by N$228.6 million to N$30.7 billion in January, representing a 0.7% m/m contraction in reserves. The BoN stated that the decrease in reserves was due to net purchases of the South African rand by commercial banks for investment purposes abroad and import payments.

Outlook

Although growth in PSCE moderated for a second consecutive month, the 7.16% y/y increase was still a faster rate of increase than in most months in 2018. Rolling 12-month private sector credit issuance is up 50.5% from the N$4.31 billion issuance observed at the end of January 2018, with individuals taking up most (55.2%) of the credit extended over the past 12 months.

As a result of the recessionary environment Namibia finds itself in, short-term and unsecured loans continue to grow at a quicker rate than that of mortgage and installment credit, as is evident by the 3.9% m/m increase in overdrafts during the month. Short-term borrowing satisfies short-term needs, and the subdued uptake of productive credit by corporations is a clear indication that business confidence remains depressed. The uptake of short-term credit is unlikely to drive meaningful expansion of productive capacity.

NCPI – January 2019

The Namibian annual inflation rate edged lower for a second consecutive month, moderating to 4.7% y/y in January, following December’s 5.1% y/y increase in prices. Prices in the overall NCPI basket increased 1.2% m/m, the largest monthly increase in prices over the last twelve months. It has become the norm for rental price adjustments to be passed through in January, which explains the elevated monthly inflation rate. On a year-on-year basis, overall prices in four of the twelve basket categories rose at a quicker rate in January than in December, while six categories recording slower rates of inflation, and two categories recorded unchanged inflation rates. Prices for goods increased by 4.2% y/y while price increases for services slowed to 1.9% y/y in January from 4.9% y/y in December.

The effects of the accelerated pace at which transport prices increased since July 2018 have now passed-through to food prices. Food & non-alcoholic beverages (FNAB) and transport, the second and third largest basket items by weighting, respectively, were equally the largest contributors to annual inflation in January. Together these basket categories accounted for 2.0% of the total 4.7% annual inflation rate. Prices for the FNAB basket increased by 1.7% m/m and 5.7% y/y in January, while prices for transport decreased by 2.6% m/m but increased 7.3% y/y. Prices in all thirteen FNAB sub-categories recorded increases on a year-on-year basis with the largest increases being observed in the prices of vegetables, fruits, bread and cereals.

rices in two of the three transport sub-categories recorded slower annual price increases compared to December, while prices in the one sub-category increased at a quicker pace in January. Price increases relating to the purchase of vehicles slowed to 6.0% y/y in January compared to 6.8% y/y in December, while prices related to public transportation services increased by 18.6% y/y owing to the increases in taxi and bus fares in September.

The operation of personal transport equipment sub-category saw prices decrease by 2.8% m/m but increase 10.5% y/y. This month-on-month decrease in the costs of operating personal transportation can be attributed to the decrease in fuel pump prices enacted by the Ministry of Mines and Energy (MME) in January. The MME cut unleaded petrol and diesel prices in January by 90 c/l and 100 c/l, respectively, thus extending motorists more relief following fuel pump price cuts in December.

 

Alcoholic beverages and tobacco prices, making up approximately 12.6% of the overall inflation basket, was the third highest contributor to the annual inflation rate in January. Accelerated increases in the prices for both the alcohol and tobacco sub-categories were observed in January, with alcohol prices increasing by 6.7% y/y and tobacco prices increasing by 5.3% y/y.

The Housing and utilities category bears the largest weighting in the CPI basket, but the year-on-year rate of price increases for this category has been slowing since November last year. Prices increased by 1.9% m/m for this category which is a result of annual rental adjustments being put through every January. Year-on-year, price increases slowed to 2.9% y/y in January (the lowest since December 2015) following a 3.1% y/y increase in December. Prices for the rental payments for dwellings sub-category increased by 2.3% y/y in January while prices for regular maintenance and repairs increased by 3.3% y/y. Price increases in the electricity, gas and other fuels subcategory were relatively muted at 4.8% y/y compared to 4.9% y/y in December.

Easing fuel pump prices continue to afford the Namibian consumer some relief and can be seen in the Namibian annual inflation rate moderating from 5.1% y/y to 4.7% y/y in January. Although slightly higher than in December, lower oil prices have contributed towards curbing rising inflation. However, risks to the inflation outlook exist. Food inflation, which was the highest contributing basket item in January, could continue to rise at an accelerated pace as poor rainfall since the start of Namibia’s rainy season (ending in April) affects local food production. The resultant shortfall will necessitate an increase in imports that will lead to higher food inflation. Increased uncertainty in food security is most likely to offset any gains from easing transport inflation.

The Bank of Namibia (BoN) recently left rates unchanged when the MPC met on the 13th of February. In its policy statement, the BoN estimates that inflation will average 5.6% in 2019. Significantly higher than the 4.3% that annual inflation averaged in 2018, and likely hinged on a probable rise in food inflation. However, the BoN’s policy decisions are driven by the level of international reserves which the BoN currently estimates sufficient, at 4.2 months of import cover, to protect the currency peg with the rand. The BoN will remain mindful of the SARB’s rate path in 2019, with SA inflation expectations being the key focus of the SARB. SA inflation is expected to be contained well within the SARB’s 3% – 6% target band, pushing the likelihood of steady interest rates for 2019 increasingly higher. This would allow the BoN to keep monetary policy accommodative for as long as the SARB does the same.