MARIAM ISA, Pretoria | Wednesday
GROWTH in South Africa’s main measure of money supply slowed in October while a pickup in demand for private sector credit was below forecasts, backing the case for steady interest rates, according to data released this week.
In the year to October the rate of expansion in M3 – which measures the total amount of money circulating in the economy – slowed to 7.82% from 8.88% in September, which was well below forecasts of 9.1%.
At the same time, private sector credit extension expanded by 11.6% from the same month in 1999 – faster than the 10.2% increase seen in September but a notch below forecasts of an 11.8% increase.
”The most important message is that there is no real inflationary threat at the moment. Growth figures on Monday suggested no cut in interest rates, but these figures suggest no increase in rates until year-end,” ABSA economist Matthys Strauss said.
South African economists are divided on the outlook for interest rates, with some expecting further rate hikes to follow an unexpected increase in the key repo rate during October and others seeing scope for renewed cuts to spur sluggish growth.
South African bond yields briefly fell three basis points to 12.69% after release of the data, but then shifted back to 12.72% as the market focus shifted to the pickup in private sector credit growth.
The volatile rand, which has lost more than 23% of its value so far this year, weakened by about two cents to 7.8050 to the dollar, despite renewed strength in the euro, the currency of South Africa’s main trading partner.
South Africa’s economy grew by 3.8% in the third quarter of the year, official data showed on Monday, while revisions to gross domestic product data for the past ten quarters prompted analysts to raise growth forecasts for 2000.
But with the most optimistic estimates putting GDP growth at just 3.0% this year, there is no sign of demand being strong enough to fan domestic inflation pressures.
The central bank has highlighted the weak rand and steep global oil prices as the main culprits behind imported price pressures, and says it will not hesitate to act again if its three to six% inflation target for 2002 is threatened.
The targeted inflation measure known as CPIX, which strips out the effect of changes in home loans, rose by 8.1% in the year to October, the same rate as in September. – Reuters