During the quarter under review, the Central Bank of Namibia kept the repo rate unchanged at 5.50% despite the fact that the South African reserve bank hiked its repo rate by 50 basis points to 5.50%. This parity in the repo rates of the two economies could lead to capital outflow and liquidity strain in the Namibian capital market. Therefore, to mitigate against possible capital outflow and liquidity strain, Namibia banks increased their offered rates along the yield curve in both fixed and floating rate instruments. As a result, the portfolio experienced an upwards reprising in floating rate instruments and maturing fixed deposits where re-invested at a higher rate. The portfolio is currently yielding an annualized gross return of 5.90 % against an annualized benchmark return of 5.32%.

Market Review

The Reserve Bank of Namibia indicated that growth prospects for 2014 are encouraging, although the agricultural sector was severely affected by drought in 2013. Further, the Central Bank forecast inflation to remain sustainably low this year, after averaging 5.60% in 2013. The announcement was followed by the Namibia Statistics Agency (NSA) releasing the Namibian Consumer Price Index (NCPI) figures for February 2014 indicating the y/y NCPI number increasing to 5.20% in February 2014 from 4.90% in January 2014. This is a clear indication that the Namibia economy is doing well, hence the reason why Central Bank kept rates on hold.

Going Forward

We still expect interest rates to move somewhat higher over the coming 18 to 24 months, therefore, we will maintain our strategy of being overweight floating rate instruments, as they would offer the best returns when interest rate go up. Furthermore, we believe that it is important to maintain a balance between having longer dated instrument in the portfolio to ensure a good yield pick-up and managing the duration of the portfolio in an environment where interest rate are expected to trend upwards