Namibia: BoN Urges Commercial Banks to Cut Prime Rate

Former Bank of Namibia (BoN) governor Iipumbu Shiimi has asked all commercial banks to cut their prime rate and other repo rate-benchmarked rates for businesses and consumers for an immediate economic impact.

The former governor said this after the monetary policy committee met to decide on the benchmark/repo rate, which determines the cost of money in the country.

BoN cut the repo rate by a percentage point from 6,25% to 5,25%, levelling it with that of South Africa.

Shiimi said the cut is a necessary growth stimulant, which is also meant to cushion the negative effect of Covid-19 on the economy.

He, therefore, asked commercial banks to cut their lending rates to businesses and households for the impact to be translated into the economy.

Although Shiimi was unable to quantify how the reduced cost for money helped to stimulate the economy during the last cut, and how it would stimulate activities this time, he indicated that it would give breathing space for businesses, who own debts or are planning to borrow, by lowering their operational cost, as the cost of servicing debt falls.

The same is expected for the indebted households, who owe commercial banks about N$50 billion in mortgage payments, would also save in their monthly payments.

The saving can be used to enhance (the purchasing power) the depressed demand, or, optionally, households can channel the savings to repaying their debts.

Shiimi added that the cut was done to counter deteriorating financial conditions, as equity markets recorded significant losses as risk and uncertainty increased.

The losses in equities expose various pension funds to book value losses and reduced returns in the country as big portion of funds are invested in equities.

According to the central bank, the country's economic activities are already feeling the pinch, as the first two months of 2020 indicate declining economic activities in tourism, mining as well as retail and wholesale segments.

With the full impact still to come as big brother South Africa keeps recording more Covid-19 cases, affecting the overall output of that country, which feeds Namibia with food and other finished products.

"Preliminary assessments indicate that the domestic economy may not be spared the brunt of Covid-19 and may, therefore, continue to weaken in 2020," he stated.

Iipumbu also indicated that meetings are happening with the private sector and policymakers to come up with remedies on how to sustain the economy and business during the pandemic.

Various analysts have warned that most businesses cash reserves will not go beyond three months, while medium and small enterprises might not have any cash reserves to cover part of their operational costs and other obligations as the economy slow down.

They call for an immediate reaction from policymakers to assist businesses in these difficult times to avoid more job losses and collapsing of small enterprises.

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