MIRIAM ISA and SARAH BULLEN| Wednesday 2.40pm
THE amount of money in the economy grew faster than expected in February, but loans to the private sector slowed, making it likely interest rates will remain on hold, data on showed.
Growth in the broad M3 measure of money supply, a key inflation indicator, accelerated to 13,93% in the year to February from a revised 10,16% in January, the central bank said. The Reserve Bank said broad M3 money supply measure rose to a rate of increase of 13,3% to end February from up 10,16% in the year to end January. Market consensus had expected a 13% increase.
Dealers said the currency and bond market reacted badly to the news of the worse- than-expected growth in money supply, with the rand weakening to above R6,51 to the dollar from R6,46 late on Tuesday. Economists said that the increase means that the Reserve Bank is going to have to tighten its monetary policy to offset inflationary pressure. This will mean that a further interest rate cut is probably off the cards. But that news was offset by evidence that demand for private credit declined during the same period, showing that consumers were unlikely to add to domestic price pressures fuelled by high global oil prices.
Credit extension to the private sector rose to a growth rate of 9,55% from January’s 9,80%. According to the new definition, which excludes loans made to provincial governments, credit extension growth was at 9,86% from January’s 10,21%.
The yield on the benchmark R150 bond was last at 13,42% versus 13,36% late on Tuesday. Bonds are expected to remain within a recent tight range in lacklustre trade, with an upper limit of around 13,44%.
ING Barings chief economist Kristina Quattek said that, although consumer credit remains weak in February, all the components reported better annual growth rates in February compared to January. “It appears as if the bottom in the consumer credit cycle has been reached, and during the coming months’ consumer credit numbers should be watched carefully,” she said.
Quattek said that the outlook for interest rates remains unchanged despite the slowdown in private sector credit.