The Bank of Namibia reported that the country's international reserves rose by 0.7% to N$58.5 billion at the end of August. This increase was primarily due to net commercial bank transfers and strong Customer Foreign Currency (CFC) placements by commercial banks during the month. Additionally, growth momentum was supported by positive changes in the market value of asset swaps, interest received, and gold purchases.
The increase in international reserves was partially offset by government payments, negative foreign exchange revaluation effects, and lower external manager valuations. In terms of reserve adequacy metrics, the level of reserves translated to an estimated import cover of 3.6 months, and four months when excluding oil and gas exploration and appraisal-related imports. At this level, reserves were estimated to be 10 times the currency in circulation.
The Namibian banking industry's cash balances decreased further in August, relative to July. The banking industry's cash position declined moderately by 3.4% to N$6.5 billion in August. The observed decrease was mainly attributed to outflows associated with increased government borrowing. This decline in cash balances may have implications for the country's financial stability.
Annual growth in other loans and advances stood at 4.7% at the end of August, relative to a negative growth of 0.3% posted in July. The increase was attributed to higher uptake by households and corporates in the manufacturing, transport, and logistics sectors. This growth in loans and advances may indicate an improvement in economic activity.
Growth in mortgage credit stood at 1.9% in August, a marginal uptick from a 1.6% growth rate registered in the preceding month. The slightly higher total mortgage credit growth emanated mainly from an increase in uptake by households, which inched up to 2.8% in August from 2.4% a month prior. This increase in mortgage credit may be a sign of growing demand for housing.
Annual growth in credit extended to the corporate sector stood at 5.9% during the month under review, higher than 3.7% in July. The increase in business credit growth was on account of higher uptake in overdrafts, as well as other loans and advances by corporates in various sectors. The total domestic private sector loan balance stood at N$127.1 billion, reflecting annual growth of 5.4%.
Economists are weighing in on the implications of the current economic trends. Almandro Jansen, an economist from Simonis Storm, noted that the repo rate is now 50 basis points higher in South Africa (7.25%) than in Namibia (6.75%). He expects the Bank of Namibia to raise the repo rate by 25bp to 7% in October to protect the peg and respond to rising inflation.
Key points
- Namibia's international reserves increased by 0.7% to N$58.5 billion in August.
- The country's reserve adequacy metrics indicate an estimated import cover of 3.6 months.
- Economists expect the Bank of Namibia to raise the repo rate in October to protect the peg and respond to rising inflation.
