The Bank of Namibia's (BoN) recent 25 basis point increase in the repo rate to 7% on October 28 is expected to dampen credit demand over the next two to three quarters. This move brought the prime lending rate to 10.50%. According to a market assessment by Simonis Storm, this increase will lead to a decline in monthly private sector credit flows from an average of around N$890 million in the third quarter to between N$450 million and N$500 million in the fourth quarter.
The assessment expects the BoN to keep rates unchanged at its December 8 meeting, with a possible final 25-basis-point increase to 7.25% early next year if inflation peaks above 6%. No interest rate cuts are expected before late 2027. In September, private sector credit extension (PSCE) increased by 5.6% year-on-year, up from 5.4% in August, marking its fastest growth since September 2025. The total credit extended to businesses and households increased by N$1.06 billion to N$128.2 billion during the month.
Corporate borrowing accounted for N$656.8 million, representing 62% of the monthly increase, while household credit contributed N$403.5 million. Banks extended N$2.68 billion in credit during the third quarter, compared with N$2.14 billion in the second quarter and N$1.02 billion in the first quarter. Year-to-date credit growth reached N$5.84 billion, 39% higher than the N$4.20 billion recorded during the corresponding nine months of 2025.
However, after adjusting for September's inflation rate of 5.4%, real private sector credit growth was only 0.2%, down from 0.3% in August. Simonis Storm noted that the increase in nominal credit demand partly reflects higher prices, with businesses and households requiring more borrowing to finance the same volumes of fuel, stock, and vehicles. The assessment expects annual credit growth to rise further in the final quarter of 2026.
The projected increase is largely attributed to base effects, particularly the N$443.6 million contraction in credit recorded in October 2025. This means even relatively moderate monthly lending could produce higher annual growth rates. The assessment expects PSCE growth to ease to approximately 5% by June 2027 as monthly lending slows and the comparison base strengthens. Inflation is expected to rise to about 5.8% by December and peak at approximately 6.2% in March 2027.
The assessment also points to the delayed impact of previous interest rate cuts as a factor behind the recent recovery in lending. The BoN reduced the repo rate by a cumulative 125 basis points to 6.50% by October 2025. The effects of rate reductions generally take between six and 12 months to feed through to credit demand. This has been reflected in household mortgage lending, which has accelerated for five consecutive months.
Meanwhile, broad money supply contracted by N$2.76 billion, or 1.5%, to N$181 billion in September, while annual growth slowed to 8% from 10.2% in August. The October repo rate increase adds further pressure on borrowers, with the assessment advising households and businesses to prepare for a prime lending rate of 10.75% in 2027.
Key points
- Private sector credit growth in Namibia is expected to slow down in 2027 due to higher interest rates.
- The Bank of Namibia raised its repo rate by 25 basis points to 7% on October 28.
- Annual credit growth is expected to reach approximately 6.4% in October, 6.3% in November, and 6.0% in December 2026.
