SA’s August M3 subsides

Growth in South Africa’s money supply slowed in August but credit demand accelerated, data on Tuesday showed, fanning fears that interest rates would

rise for the fifth time this year to quash soaring inflation.

Preliminary figures released by the central bank showed its broadly defined M3 money supply grew by 16,21% in the year to August — a notch below forecasts of a 16,5% increase and slower than the 17,33% rise seen in July. That news gave government bonds a bit of respite after a spate of bad news on inflation, briefly pushing yields lower. But analysts warned that a pickup in growth of private sector credit — highlighted as a key concern by the Reserve

Bank — would back the case for another rate hike when the bank’s monetary policy team holds its next meeting in November. Private sector credit demand grew by an annual rate of 10,89%, against a revised 10,86% in July — well above forecasts of a 10,7%increase. ”These numbers are likely to gradually come down over the next few months, given the effect of the four interest rate hikes this year,” Nedcor economist Magan Mistry said.

”Nevertheless, the Reserve Bank is likely to continue to focus on the inflation rate and achieving the target in 2003.

There is still a significant danger of another interest rate hike when it meets in November…,” he said. South Africa’s central bank has already raised its key repo rate by four percentage points so far this year in what many view as a largely futile bid to dampen price pressures ignited by the rand’s historic plunge late in 2001.

Comments from central bank governor Tito Mboweni in the past week have suggested that another rate hike could be on the cards, although Finance Minister Trevor Manuel has said he is very concerned by the upward trend in interest rates. Most analysts believe the country’s ambitious three to six percent inflation target set in 2000 will be missed both this

year and next, and are concerned about the impact of higher interest rates on growth and investment.

But bond traders said on Tuesday the market had chosen to focus on the benign signal sent by the slowdown in money supply, after worrying increases in both producer and consumer prices during August.

The yield on the benchmark R150 due 2005 fell four

basis points after the data was released to 12,46%,

while yields on the R153 due 2010 dipped 4,5 basis points to 11,83% before creeping back up to 11,87%. – Reuters

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