Category Archives: Team Commentary

Team Commentary

BON MPC Expectations – 17/06/2015

By | |
Comments Off on BON MPC Expectations – 17/06/2015

In the build-up to the Bank of Namibia’s MPC meeting, we always get a lot of calls from companies, individuals and the media, looking for a view on what the Bank is expected to do.

As we usually do, we discussed this in our morning meeting today, and I personally am of the view that give the recent data releases in the country, a hike is not warranted at the current point in time. The reasons for this view are simple:

  1. According to the NSA, GDP growth is slowing, coming down from 5.1% in 2013 to 4.7% in 2014.
  2. PSCE growth remains high, however growth in household borrowing has slowed notably, to just 12.1%, well below nominal GDP growth suggesting household deleveraging relative to income, is taking place. Concern in this regard is that installment credit growth remains high, at 19.2% – very much the current concern of the Bank of Namibia.
  3. Headline inflation has slowed to just 2.9%, the lowest level in many many years. While much of the demand-pull inflation remains a lot higher than this (often over 10%), the overall price pressure on Namibian’s is relatively low by historic standards.
  4. Foreign reserves appear to have stabilized, albeit at a relatively low level when assessed in NAD terms. Also, this position is likely to recover further when the country’s new mines start exporting.

As such, while the Bank of Namibia is likely to remain on a rate-normalization path over coming months, there is no urgent need for higher rates in the current period or immediate future. I would thus say that there is a 75% probability of rates remaining flat, and a 25% chance of a 25bp (0.25%) hike. That said, I am notoriously awful at calling the BON moves, so may well be way off.

PSCE – April 2015

By | | , ,
Comments Off on PSCE – April 2015

Picture1

Overall

Total credit extended to the private sector increased by N$653.4 million, or 0.9%, in April 2015, taking total credit outstanding to N$72.7 billion. On an annual basis PSCE growth eased slightly to 16.8% from 17.6% in March, off an ever increasing base. A net total of N$10.8bn worth of credit has been extended over the last 12 months. Of this N$10.5bn, approximately N$5.9bn was issued to businesses, while N$4.5bn was taken up by individuals.

Picture2

Credit extension to households

Credit extension to households expanded by 0.9% on a monthly basis and 12.1% on an annual basis in April, showing little reaction to the interest rate increase of February 2015. It is worth remembering that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small.

Household mortgage loans expanded by 2.7% month on month and continue to make up the majority of credit extended to households. Mortgage loans to individuals make up almost 40% of total credit extended, while instalment credit contracted by 7.9%. Overdrafts expanded by 2.4% on a monthly basis, and other loans and advances increased by 0.8%.

Instalment credit makes up the second largest component of credit extended to households but is the fastest growing component with a year on year growth rate of 18.1% compared to the 12.1% growth seen in total credit extended to households. This points to a nation that is becoming more comfortable with the use of debt for private consumption. Installment credit is often used to purchase consumer goods and could be seen as a non-productive utilization of credit, and much of this is spent on imported goods.

Credit extension to corporates

Credit extension to corporates grew by 1.2% on a month on month basis and 24.1% year-on-year In April, meaningfully higher than the growth of credit extended to households once again. This expansion was, primarily, driven by huge growth in leasing transactions, which expanded by 47.2% y/y. The rapid uptake of credit by businesses can, at least partly, be attributed to the rapid expansion of the local economy as well as the potential growth in such yet to be unlocked.

Reserves and money supply

Foreign reserves increased by 24.8% m/m in April, from the lowest level since March 2012 of N$12.3 billion to N$15.4 billion. The increase was mainly due to SACU receipts at the end of the month under review.

Picture3

Outlook

Due to strong wealth effects as a result of prolonged and abnormally high growth, we believe that demand for credit will remain high, while real income growth will allow suppliers of debt to continue to lend with a fair level of confidence. Additionally, the lagged effects of increasing interest rates mean that it is unlikely that we will seen a major impact on credit demand by households for a period of 6 to 18 months after rate hikes start, provided that the magnitude of the hiking cycle is sufficient to cause an impact. However, the decline in reserves is cause for concern, as is the peculiar growth in installment credit seen through March, and these factors may result in a sooner, and more aggressive, interest rate hike than previously expected.

 

Namibia CPI – April 2015

By | | , ,
Comments Off on Namibia CPI – April 2015

Picture1

Namibian annual inflation eased further to 2.9% in April, from 3.4%in March. On a monthly basis weighted prices rose by 0.5%. The majority of CPI basket categories saw rates of inflation fall on an annual basis, with Clothing, Health, Hotels and Miscellaneous being the only categories that experienced year on year increases in the rate of inflation during April. On a monthly basis, except for clothing, housing utilities and furniture, all the categories experienced price increases contributing to an overall increase in prices for the month.

Picture2

Transport prices continued to contract, down 4.2% y-o-y in Aprilafter falling 3.7% y-o-yin March. Within the basket category, operation of personal transportation equipment was the only subcategory to experience a price contraction, while inflation of public transportation services slowed significantly and purchase of vehicles experienced relatively steady price growth. The deflation experienced in operation of personal transport equipment is due to the further decrease in fuel prices in February, remaining changed thereafter in March,driven by low oil prices.However, fuel prices have been increased by the Ministry of Mines and Energy during April.

The alcoholic beverages and tobacco category continues to see prices rise at a more rapid rate than most of the basket categories. Prices increased 7.1% y/y in April, down from 8.6% in March and was the single biggest contributor to the overall rise in prices experienced during the month. It is not likely to experience much slowdown going forward due to South Africa raising sin taxes, which flowed through to Namibia during their last budget announcement.

Food and non-alcoholic beverages annual inflation eased from 5.5% in March to 5.2% in April. Price increases in this category were mainly observed in the sub components of sugar, honey, jams (up 5.7%), vegetables (up 4.9%), fish (up 4.9%) and meat (up 2.9%). The lag between the drop in fuel prices and food inflation slowing tends to be between 12 and 18 months and as such should start kicking in before the second half of the year.

Picture3

While we expected inflation to slow further in April, the extent of this decline was unexpected. Going forward, we expect inflation to normalise somewhat in May and June with prices growing again in the latter half of the year. Low fuel prices should see food and non-alcoholic beverage inflation slowing towards the final quarter of the year due to the lagged transmission mechanism. This together with the depressed levels of inflation in housing, transport, and various other basket categories should see inflation at below trend levels for the next few months. However the current drought resulting in large losses in agricultural production in Namibia and South Africa, as well as South Africa raising fuel prices to fund infrastructure developments could see surprises to the up-side. In addition, the current weak rand will have an inflationary effect on imported goods which will add to any upside surprises in the coming months.