This week the Bank of Namibia has raised the Interest Repo Rate; so what does that mean for you as a consumer?
When the Central Bank, Bank of Namibia, raises the interest rate, it means a few things; it wants to control the inflation, because there’s too much cash floating in the economy, it wants to reduce economic growth, it means more other things.
So when the Central Bank increases its interest rate, then commercial banks and lending institutions will also raise their interest rate in proportion with the Central Bank’s interest rate.
By doing so, it becomes a bit more expensive to borrow money; your house or car or personal loan may become a bit more expensive due to the fact that your interest rate for your loan also goes up, making it more expensive for you to apply for a loan.
When it is expensive to apply for a loan, then more and more people are likely to cut down on their loan applications, and as such less money flows in the economy as a result. When less money flows in the economy, people reduce on their consumer spending, which further reduces the demand for the consumer goods; meaning that less people are buying goods and services. When the demands for the consumer goods and services decreases, then prices of goods sharply fall in the economy; things become a bit more cheaper as more sellers try to seduce customers to demand more by buying more.
This is the general rule of the demand and supply; when less customers are buying, you reduce your selling price. Hence the inflation (price of goods) in the economy goes down. Inflation is the sharp raise of prices in the economy. When the demands in the economy decrease, then the suppliers further cut down on their supplying of goods (slowing down on their manufacturing or importing of goods). When suppliers cut down on their manufacturing of goods and further decrease on their imports, then more employers also cut down on the number of employees, then jobless increases in the economy. Then the economic growth goes in the slow down mode.
Now the question is; why would the Bank of Namibia raises the interest rate at this time especially when the value of the Namibian dollar currency is already down due to the weak South African Rand and the strong US dollar? What is the Bank of Namibia trying to achieve by slowing down the Namibian economic growth given the fact that the unemployment rate is already high? OK, the Bank of Namibia wants to cut down on the inflation, but can this really help the economy at this time?
Is this the right time to raise the interest rate?
(I’m a Neuroeconomist, with high interests in macroeconomics, econometrics, systems dynamic, business and financial analysis.)