Namibia's central bank raised its policy rate by 25 basis points for the second time this year to "contain high growth in household credit particularly that of installment credit," noting that a large portion of the loans continue to be used to finance unproductive imported luxury goods, hence putting additional pressure on the international reserves of the country.
The Bank of Namibia, which raised its benchmark repo rate to 6.50 percent for a total increase of 50 basis points this year following a February hike, said it expects banks to raise their deposit rates by 25 points and thereby encourage consumers to save.
In its last meeting in April, the central bank's monetary policy committee maintained its rate to assess the impact of the February rate rise but said then that it remained concerned over the high growth in installment credit.
The annual growth in private sector credit expansion rose by 16.7 percent on average in the first four months of this year, up from an annual rise of 16.2 percent in the last four months of 2014. The central bank did not release figures for credit to individuals but said it "remained elevated."
But Namibia's stock of international reserves remain sufficient to back the one-to-one link to the South African rand, with reserves at N$12.1 billion as of June 15.
"The MPC is, however, still concerned about the high import bill resulting from the importation of unproductive goods, such as luxury vehicles, which puts additional pressure on international reserves," the central bank said.
Namibia's economy continues to develop positively, the central bank said, sustained by construction, wholesale and retail trade. Mining activities, however, weakened except for gold.
Namibia's inflation rate rose slightly to 3.0 percent in May from 2.9 percent in April and "going forward, the overall annual inflation is expected to remain low and stable for the remainder of 2015," the central bank said.