BoN rate hike adds N$4 000 a year to bond costs

**CHAMWE KAIRA **

The Bank of Namibia’s decision to raise the repo rate to 7.00% will increase annual repayments on a typical N$1 million home loan by about N$4 000 since the current interest rate hiking cycle began, adding pressure on households already facing higher fuel and electricity costs.

The Monetary Policy Committee (MPC) unanimously raised the repo rate by 25 basis points on 28 October 2026, marking the second increase in the current cycle after the June hike to 6.75%.

The latest increase pushes the commercial banks’ prime lending rate to 10.50%, raising monthly repayments on a N$1 million bond over 20 years by about N$168.

The cumulative monthly increase since the start of the cycle is approximately N$334.

The central bank’s decision is aimed at protecting the Namibia dollar’s one-to-one peg with the South African rand, supporting foreign reserves and containing the broader inflationary effects of rising fuel prices.

The rate increase also narrows the interest rate differential with South Africa, restoring the traditional 25-basis-point gap between the Bank of Namibia’s repo rate and the South African Reserve Bank’s policy rate.

Before the latest decision, the gap had widened to 50 basis points.

Maintaining the interest rate differential helps limit incentives for capital outflows and supports the stability of the currency peg.

Fuel prices remain a key inflation risk, with higher transport and production costs potentially feeding through to other goods and services.

Namibia recorded a merchandise trade deficit of N$33.5 billion between January and August, according to the figures provided.

The rate hike comes as households contend with a N$1.50 per litre petrol price increase earlier in October and a 3.7% NamPower electricity tariff increase.

The agricultural sector is also facing mounting pressure from higher borrowing costs and input prices, drought risks and the threat of foot-and-mouth disease, which could further constrain production and trade.

The Bank of Namibia expects the economy to grow by 2.1% in 2026, although rising costs and tighter financial conditions could weigh on household spending and business activity.

According to Simonis Storm Research, monetary policy remains only mildly restrictive, with analysts expecting the central bank to hold rates at its final MPC meeting of the year on 8 December.

However, the research firm expects headline inflation to rise towards 6.2% around the turn of the year, potentially prompting another 25-basis-point increase to a repo rate of 7.25% in early 2027.

Prime lending rates could consequently remain between 10.50% and 10.75% for much of 2027, with potential interest rate cuts only emerging towards the end of the year.