Economic Update
BANK WINDHOEK
01 November 2010, Edition 22
Economic Update MONETARY AND CREDIT CONDITIONS Chart 1: Broad money supply and inflation
Chart 2: Total private sector credit extension
Source: CBS
Source: BON
• The annual growth rate of broadly defined money supply (M2), which includes currency in the hands of the public, transferable deposits and other deposits, accelerated to 11.8 percent during the month of September 2010 from 9.6 percent during the previous month (Chart1).
• T he annual growth rate in credit extended to the domestic private sector by banking institutions, slowed further to 9.6 percent during the month of September from 10.8 percent during the previous month and 11.4 percent during the month of July.
• The increase in money supply can be attributed to credit extended to the private sector by banking institutions, which increased on an annual basis by 9.6 percent during the month of September, as well as a significant reduction in net claims on the central government to the tune of N$3.9 billion compared to one year earlier.
• A ccording to the Bank of Namibia, the slower growth in credit extension is attributed to the continuation of repayment of short-term over draft facilities by business corporations during the month of September in the wake of a recovering economy.
Contact: Dr John Steytler, (061) 299 1329 The information contained in this insert is the property of Bank Windhoek and may not be reproduced in any way without the explicit permission of Bank Windhoek. Any views or comments aired in this publication are based upon expressed opinions of individuals and may not reflect the opinions of Bank Windhoek.
www.bankwindhoek.com.na
Economic Update MONETARY AND CREDIT CONDITIONS Chart 3: Real credit growth
• If Bank of Namibia takes consideration of the latter, it will increase the probability of a further 25 basis point reduction in the Repo Rate at its next policy meeting in December.
Chart 4: Credit extended to businesses and individuals
Bank of Namibia and CBS
• In real terms, growth in total private sector credit slowed to 5.9 percent during the month of September from 6.5 percent during the previous month. • The slowdown in real terms is attributed to a fall in the nominal growth rate of credit extension and a moderate increase in the annual inflation rate during the month of September. • Although the real interest rate declined by 10 basis points to 3.30 percent, it remains relatively high when compared to advance economies where real interest rates are in negative territory. • The slowdown in credit growth may therefore also be attributed to relatively higher real interest rates, which make it more expensive in real terms to take up credit.
Source: Bank of Namibia
• The annual growth rate in credit to the business sector decelerated to 11.8 percent in month of September from 13.9 percent during the previous month and 18 percent in the month of July. • As noted before, the Bank of Namibia attributed the slowdown in business credit to a reduction in short-term overdraft facilities by business corporations during the month under review on account of improved economic activities.
Contact: Dr John Steytler, (061) 299 1329 The information contained in this insert is the property of Bank Windhoek and may not be reproduced in any way without the explicit permission of Bank Windhoek. Any views or comments aired in this publication are based upon expressed opinions of individuals and may not reflect the opinions of Bank Windhoek.
www.bankwindhoek.com.na
Economic Update MONETARY AND CREDIT CONDITIONS • On the other hand, the annual growth rate in credit to the household sector moderately improved to 8.4 percent in September from 8.0 percent during the previous month.
Chart 5: Mortgage loans
• Given the recovery in number and value of Windhoek based building plans during the first 9 months of 2010, we are of the view that growth in mortgage credit will continue to recover in the months ahead, as there is usually a lag between the approval of building plans and mortgage credit.
Chart 6: Instalment credit
Source: CBS
Source: BON
• The annual growth rate of credit to the mortgage sector moderately increased to 11.0 percent in September from 10.8 percent during the previous month. • According to the Bank of Namibia, the increase was reflected in both the business and household sector.
• Instalment credit, which is mainly earmarked for vehicle asset financing, increased on an annual basis by 8.8 percent during the month of September from 7.0 percent during the previous month.
Contact: Dr John Steytler, (061) 299 1329 The information contained in this insert is the property of Bank Windhoek and may not be reproduced in any way without the explicit permission of Bank Windhoek. Any views or comments aired in this publication are based upon expressed opinions of individuals and may not reflect the opinions of Bank Windhoek.
www.bankwindhoek.com.na
Economic Update MONETARY AND CREDIT CONDITIONS Chart 7: Credit extension in Namibia and South Africa
BON and SARB
• The differential in the annual growth rate of credit between Namibia and South Africa narrowed to 5.2 percent during September from 7.1 percent during the previous month. • The narrowing in the differential can be explained by the fact that the annual growth rate of credit in South Africa moderately increased to 4.4 percent during the month of September, while credit growth in Namibia decelerated to 9.6 percent. • The recovery in credit extension in South Africa, albeit moderately, reduces the probability of a further interest rate cut in South Africa from a pure monetarist perspective. • However, given the output gap in South Africa, a relatively strong currency and a weakening external environment, a further reduction in interest rates is not fully ruled out. Contact: Dr John Steytler, (061) 299 1329 The information contained in this insert is the property of Bank Windhoek and may not be reproduced in any way without the explicit permission of Bank Windhoek. Any views or comments aired in this publication are based upon expressed opinions of individuals and may not reflect the opinions of Bank Windhoek.
www.bankwindhoek.com.na
01 November 2010, Edition 22
Economic Update MONETARY AND CREDIT CONDITIONS Chart 1: Broad money supply and inflation
Chart 2: Total private sector credit extension
Source: CBS
Source: BON
• The annual growth rate of broadly defined money supply (M2), which includes currency in the hands of the public, transferable deposits and other deposits, accelerated to 11.8 percent during the month of September 2010 from 9.6 percent during the previous month (Chart1).
• T he annual growth rate in credit extended to the domestic private sector by banking institutions, slowed further to 9.6 percent during the month of September from 10.8 percent during the previous month and 11.4 percent during the month of July.
• The increase in money supply can be attributed to credit extended to the private sector by banking institutions, which increased on an annual basis by 9.6 percent during the month of September, as well as a significant reduction in net claims on the central government to the tune of N$3.9 billion compared to one year earlier.
• A ccording to the Bank of Namibia, the slower growth in credit extension is attributed to the continuation of repayment of short-term over draft facilities by business corporations during the month of September in the wake of a recovering economy.
Contact: Dr John Steytler, (061) 299 1329 The information contained in this insert is the property of Bank Windhoek and may not be reproduced in any way without the explicit permission of Bank Windhoek. Any views or comments aired in this publication are based upon expressed opinions of individuals and may not reflect the opinions of Bank Windhoek.
www.bankwindhoek.com.na
Economic Update MONETARY AND CREDIT CONDITIONS Chart 3: Real credit growth
• If Bank of Namibia takes consideration of the latter, it will increase the probability of a further 25 basis point reduction in the Repo Rate at its next policy meeting in December.
Chart 4: Credit extended to businesses and individuals
Bank of Namibia and CBS
• In real terms, growth in total private sector credit slowed to 5.9 percent during the month of September from 6.5 percent during the previous month. • The slowdown in real terms is attributed to a fall in the nominal growth rate of credit extension and a moderate increase in the annual inflation rate during the month of September. • Although the real interest rate declined by 10 basis points to 3.30 percent, it remains relatively high when compared to advance economies where real interest rates are in negative territory. • The slowdown in credit growth may therefore also be attributed to relatively higher real interest rates, which make it more expensive in real terms to take up credit.
Source: Bank of Namibia
• The annual growth rate in credit to the business sector decelerated to 11.8 percent in month of September from 13.9 percent during the previous month and 18 percent in the month of July. • As noted before, the Bank of Namibia attributed the slowdown in business credit to a reduction in short-term overdraft facilities by business corporations during the month under review on account of improved economic activities.
Contact: Dr John Steytler, (061) 299 1329 The information contained in this insert is the property of Bank Windhoek and may not be reproduced in any way without the explicit permission of Bank Windhoek. Any views or comments aired in this publication are based upon expressed opinions of individuals and may not reflect the opinions of Bank Windhoek.
www.bankwindhoek.com.na
Economic Update MONETARY AND CREDIT CONDITIONS • On the other hand, the annual growth rate in credit to the household sector moderately improved to 8.4 percent in September from 8.0 percent during the previous month.
Chart 5: Mortgage loans
• Given the recovery in number and value of Windhoek based building plans during the first 9 months of 2010, we are of the view that growth in mortgage credit will continue to recover in the months ahead, as there is usually a lag between the approval of building plans and mortgage credit.
Chart 6: Instalment credit
Source: CBS
Source: BON
• The annual growth rate of credit to the mortgage sector moderately increased to 11.0 percent in September from 10.8 percent during the previous month. • According to the Bank of Namibia, the increase was reflected in both the business and household sector.
• Instalment credit, which is mainly earmarked for vehicle asset financing, increased on an annual basis by 8.8 percent during the month of September from 7.0 percent during the previous month.
Contact: Dr John Steytler, (061) 299 1329 The information contained in this insert is the property of Bank Windhoek and may not be reproduced in any way without the explicit permission of Bank Windhoek. Any views or comments aired in this publication are based upon expressed opinions of individuals and may not reflect the opinions of Bank Windhoek.
www.bankwindhoek.com.na
Economic Update MONETARY AND CREDIT CONDITIONS Chart 7: Credit extension in Namibia and South Africa
BON and SARB
• The differential in the annual growth rate of credit between Namibia and South Africa narrowed to 5.2 percent during September from 7.1 percent during the previous month. • The narrowing in the differential can be explained by the fact that the annual growth rate of credit in South Africa moderately increased to 4.4 percent during the month of September, while credit growth in Namibia decelerated to 9.6 percent. • The recovery in credit extension in South Africa, albeit moderately, reduces the probability of a further interest rate cut in South Africa from a pure monetarist perspective. • However, given the output gap in South Africa, a relatively strong currency and a weakening external environment, a further reduction in interest rates is not fully ruled out. Contact: Dr John Steytler, (061) 299 1329 The information contained in this insert is the property of Bank Windhoek and may not be reproduced in any way without the explicit permission of Bank Windhoek. Any views or comments aired in this publication are based upon expressed opinions of individuals and may not reflect the opinions of Bank Windhoek.
www.bankwindhoek.com.na
