MARIAM ISA, Johannesburg | Thursday
SOUTH Africa’s broad M3 measure of money supply surged by 17,77% in the year to July, data on Thursday showed, but analysts said the outlook for rate cuts was intact.
The central bank said the main reason for the sharp increase which surpassed forecasts of a 15,5% rise was the takeover of diamond giant De Beers by an offshore company.
The diamond giant was acquired by a consortium led by London-listed miner Anglo American Plc for about $19-billion in June. This resulted in a foreign exchange inflow of more than $3-billion, with a large chunk of that amount deposited at commercial banks the following month.
Private sector credit (PSCE) demand data released at the same time sent a more benign signal, growing as expected by 9,54% year-on-year, the same level as the previous month.
Against the background of sluggish overall economic growth and falling inflation, analysts said the prospects of further interest rate cuts this year were still intact.
”The M3 is bit disappointing because it’s higher than expectations, but given the fact that PSCE has not risen, there probably is no need for concern since it does not seem to be demand driven,” Standard Bank economist Monica Ambrosi said.
”It should not alter the interest rate outlook.”
June M3 growth was an unrevised 13,90%.
A breakdown of the central bank’s data showed that the bank deposits component of M3 surged by R8,3-billion to 547,1-billion during the month.
”The companies that received rand from the De Beers deal appear to have deposited much of it with their banks during the month. Most of it went into medium-term deposits with a duration of one to six months,” a central bank representative said.
South African markets were unperturbed by the data, with the rand little moved at 8,345 against the dollar.
But yields on the most traded R150 bond, due 2005, nudged up two basis points to 10,07% against 10,10% late on Wednesday.
South African economists believe that the central bank will cut its key repo rate by between 50 and 100 basis points before the end of the year, either at its next monetary policy meeting in September or the following one in November.
Growth data released on Tuesday showed that the economy accelerated slightly by 2,3% in the second quarter, but the annual increase in gross domestic product is still expected to fall well short of an official forecast of 3,5%.
With unemployment estimated at more than 30%, and targeted inflation heading towards its target range, there is still scope for the central bank to cut rates, analysts say.
”Generally speaking I don’t think it (the data) changes much in the interest rate outlook. I would expect a cut by the end of the year, but I wouldn’t want to stick my neck out and say September,” S&P MMS analyst Geroge Glynos said.
The South African Reserve Bank unexpectedly cut its key repo rate by 100 basis points to 11% in June, ushering in the first fall in commercial lending rates for 17 months.
Earlier this week, it unveiled another 100 basis point cut in the rate which will take effect on September 5, but this offsets more expensive vault cash requirements for central banks and is not expected to trigger falls in the prime lending rate.
There is mounting speculation that the central bank is now taking more account of growth when it decides monetary policy, although its main aim is to get the CPIX inflation index down to between three and six percent by next year.
That index, which strips out the impact of changes in home loans, grew by an unchanged 6,4% in the year to July.
– Reuters