FRIDAY, 5.00PM:
The key M3 money supply for October has suddenly jumped by R5 667-million rand to R364 457-million — from R358 790-million in September, a far worse figure than expected. But economists warn against taking a single month’s figure as proof of a trend.
According to figures released by the Reserve Bank on Friday, the seasonally adjusted M3 money supply was at R366 813-million in October, up from R359 732-million in September. The percentage change over 12 months is 17,09% — up from 16,30% in September.
Total domestic credit extension is also up — R429 645-million in October as against R421 845 in September. The percentage change in total domestic credit extension over 12 months is 17,21 for October, against 15,34 in September.
Since the short term relationship between money supply and the economy is not clear, it is still too early to tell whether the latest figures are ‘statistical noise’ or the beginning of an ominous stronger upswing in the money supply.
The indications from car sales and other factors are that October was in fact not a very buoyant month for the economy. The latest figures come just after the start of turmoil in the stock market, so financial market activity could be an important factor. Some speculators may have increased their overdrafts to stay liquid, and others could have sold out, or added to their deposits.
Jac Loubser, Chief Economist at Sanlam Asset Management says the leap in money supply and credit extension figures has upset the trend of improvement and may stall the relaxation of monetary policy in the new year. But he is waiting for next month’s figures to see if this is a trend, or a one-off hiccup. Loubser finds it difficult to believe that this a trend, and is sticking to his prediction of a further drop in interest rates by the end of the first quarter of next year. Loubser says the high money supply is to a large extent the result of the high growth in credit extension. The increases came as a surprise — in particular the fact that mortgage figures increased. He says that that is difficult to explain.
The only possible explanation is that consumers used their access bonds to mobilise funds to put into the equity market. He does not think the credit growth is due to distress borrowing — it s too large and sudden a leap for that. More detail should emerge when the DI 900 forms that banks fill in for the Reserve Bank become available.