Namibia - Namibia’s central bank raised its benchmark interest rate for the first time in more than six years to curb inflation and rising credit demand.

The repurchase rate was increased by a quarter of a percentage point to 5.75 percent, Governor Ipumbu Shiimi told reporters today in the capital, Windhoek.

Inflation, which reached 6.1 percent in May, will probably average about 6 percent this year, he said.

“People need to watch out when they take on new debt,” Shiimi said.

“With the increase in the interest rate, it means debt is no longer going to be cheap.”

Credit growth accelerated to 15.8 percent in April from 14.3 percent in December as consumers and businesses increased overdraft loans and funding to buy cars, the central bank said.

Vehicle imports surged by more than 50 percent in the first four months of the year compared with the same period in 2013, boosting the trade deficit.

“The rapid growth in imports of vehicles, partly financed by installment credit, remains a concern,” Shiimi said.

“This has put pressure on the international reserves of the country and requires monitoring.”

Namibia pegs its currency to South Africa’s rand and generally follows monetary policy set by policy makers in the neighbouring country.

The South African Reserve Bank has left its benchmark interest rate unchanged at 5.5 percent since raising it by 50 basis points in January.

The Bank of Namibia will seek to tighten credit rules in order to curb demand and reduce spending on non-productive imports, such as passenger vehicles, Shiimi said.

The bank will make proposals to the relevant authorities to revise the rules, he said.

“We want to tighten some loopholes in the law,” he said.

“We are not against consumers buying vehicles. Consumers can easily get a car without a deposit, they are buying cars they can’t afford.”

The trade deficit widened by 19 percent to 6.3 billion Namibia dollars ($585 million) in the first quarter compared with the same period in 2013. - Bloomberg News