Is There A Casual Relationship Between Lending Interest Rate and Credit Availability to Households in Namibia?

Abstract

This study purposed to answer the question of whether or not there exist a causal relationship between the lending interest rate and credit volume available to households in Namibia. Analytical methods of unit root, Johansen cointegration, Granger-causality and the impulse response function were all used for estimation. The study period is the year 2000 to 2012 using panel data. Lending rate and credit stock available proved to be significant but with an inexistence of a long-run relationship between them. There is a one directional causal relationship between lending interest rate and credit available to households in Namibia which runs from credit availability to lending interest rate. Having also found a positive relationship between credit availability and lending interest rate in Namibia, lending rate should be sustained at a slightly higher level in order for the economy to keep prices stable.