By Hilary Mare
SIMONIS Storm Securities has reiterated its call for a 25 basis points interest rate cut adding that the firm expected Bank of Namibia to cut interest rates at its rate decision last week.
Last week, Bank of Namibia kept interest rates unchanged.
Junior Analyst, Indileni Nanghonga said the firm was of the view that the consumer is only supported by lower inflation whereas high mortgage interest payments continue to erode income.
“Namibia has registered its first annual Gross Domestic Product (GDP) contraction of 0.8 percent in 2017. This in our view should have triggered an interest rate cut to support improvement in investment, household consumption and confidence within the dire economy. We reiterate our view of a 25bps rate cut in 2018,” she said.
In essence, inflation in Namibia stood at 3.5 percent for two consecutive months, increasing at the pace seen during 2015.
The moderate annual inflation can be attributed to a continuous slow increase in the food and non-alcohol beverages, housing, water, electricity, gas and other fuels coupled with a continuous contraction seen in the clothing and footwear category.
Food and Non-alcoholic beverages increased at a slower pace of 2.7 percent y-o-y in March 2018 compared to 7.3 percent recorded in the prior year.
Deflation in the bread and cereals subcategory has been long overdue since May 2017. Fish, sugar, oils and hot beverages inflation (which increased significantly in 2017) has moderated to 3.1 percent, 3.4 percent, 2.0 percent and 3.5 percent during March 2018 compared to 16.7 percent, 15.5 percent, 6.9 percent and 22.7 percent respectively, in March 2017.
However, the deflation is also pronounced in the meat, fish, and milk, cheese and eggs subcategories on a monthly basis.
Inflation within the transport category has increased by 5.4 percent y-o-y at the end of March 2018 compared to 6.5 percent recorded in March 2017.
The annual increase was mainly driven by the operation of personal transport equipment (5.8 percent from 8.5 percent in March 2017).
Of interest to note is the slowing inflation rate in the purchases of vehicles.
“We attributed that to the recent slowdown in instalment credit coupled with the slowing consumer appetite for vehicles. Despite the increase in global oil prices to a high of US$72/bbl., we believe that the strong appreciation in the rand since December 2017 has contributed to a slower inflation pace in this category. We expect it to increase as the rand depreciates back to the USDZAR12.50 levels over the medium term,” Nanghonga extended.
Deflation remains common in some subcategories in the furnishing, household equipment and routine maintains of the house category. Subcategory such as furniture, furnishings, decorations, carpets, floor coverings, and repairs recorded a deflation since April 2017.
Retailers remain under pressure and this is evident in the negative retail and wholesale GDP growth number for 2017.
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