Namibia’s central bank raised on Wednesday (June 18) its key repo rate by 25 basis points to 5.75%, citing concerns about international reserves having come under pressure from a surge in unproductive vehicle imports.

The Bank of Namibia said in a statement that the number of vehicles sold during the first four months of 2014 surged more than 50% y/y. The value of imported vehicles, partly financed by instalment credit, stood at NAD 2.2bn (USD 204mn), accounting for 14% of the total value of imports and contributing to a significant increase in the trade deficit.

At the same time the annual growth in domestic private sector credit rose to 15.8% in April from 14.3% in December 2013 due to strong demand by both businesses and households (mainly instalment credit and overdraft loans).

The Bank of Namibia said also that the domestic economic growth was good in Q1 and is expected to improve during the remainder of the year, backed by construction activities and a strong growth in consumer demand. On the other hand, weakening global commodity prices pose risks to the country’s growth, as they could hurt mineral exports. The bank has forecast a GDP growth of 5.3% for 2014.

Namibia’s annual inflation has increased to 6.1% in May from 4.9% in December mainly due to higher food and transport prices. The central bank expects inflation to average about 6.0% this year.

The Namibian dollar is pegged to the South African rand and the Bank of Namibia generally mirrors the interest rate decisions of the South African Reserve Bank (SARB). However, Namibia did not track SARB’s 50bps rate hike in January. Namibia’s benchmark rate had stayed unchanged at 5.5% since August 2012, when the central bank cut it from 6.0%, following a surprise cut of SARB’s repo rate to 5% in July 2012.