Namibia's central bank raised its benchmark repo rate by 25 basis points to 6.0 percent, its second rate rise in a row, to "contain the strong growth in household credit, which is largely financing unproductive imported luxury goods and putting additional pressure on the international reserves of the country."
The Bank of Namibia, which has now raised its rate by 50 basis points this year, also said the country's trade deficit widened further in the first half of the year due to higher imports, mainly of capital inputs but also passenger vehicles and other consumer goods, including luxury goods.
The central bank did not provide data for the trade balance in the first six months but in the first quarter of the year the trade deficit grew to 7.319 billion Namibian dollars from 4.448 billion in the previous quarter as imports rose to 17.476 billion from 15.870 billion and exports fell to 10.157 billion from 11.422 billion.
Namibia's inflation rate, which has been rising steadily since December last year, eased in July to 5.6 percent after rising from 4.4 percent in December to 6.1 percent in June.
In June, when the central bank raised its rate for the first time since a cut in August 2012, it raised the 2014 inflation forecast to an average of 6 percent from below 6 percent.
Today it confirmed that it still sees inflation averaging 6 percent, down from 6.2 percent in 2013.
Credit to the private sector increased to an average growth rate of 15.3 percent in the first half of this year from 13.9 percent in the last six months of 2013 due to strong demand from both households and businesses.
Growth in household credit was mainly seen in installment credit, overdrafts and other loans and advances, which "regrettably are also used to finance unproductive imported luxury goods," the central bank said.
Namibia's economic activity improved in the first half of the year, driven mainly by construction, wholesale and retail trade, diamond mining, cereal production and the public sector. In contrast, uranium mining and zinc production performed poorly, the bank said.
In the first quarter of the year, Namibia' Gross Domestic Product expanded by 1.6 percent from the same quarter last year, down from annual growth of 4.9 percent in the fourth quarter.
The central bank said the economy was expected to improve for the rest of the year, supported by construction and strong domestic demand, with the risk to growth from a drop in international commodity prices from depressed demand.
In April the central bank forecast 2014 growth of 5.3 percent, up from 2013's 4.3 percent.