Growth in credit demand by South Africa’s private sector slowed to 26,77% in the year to November, but was close to October’s record 27,24%, adding to risks of a further interest rate hike.
During the same period the broadly defined M3 measure of money supply grew by 25,33%, from 23,51% in October, central bank data showed on Friday.
Both figures were higher than expected as five economists surveyed by Reuters had forecast that private sector credit demand would have risen by 26,4% year-on-year last month and the annual growth in M3 would be 24,4%.
”It’s worse than expected. It clearly shows that the private sector is borrowing as if it’s never borrowed before,” said George Glynos, economist at Econometrix Treasury Management.
”It’s unfortunate that it’s growing this rapidly because we think it forces the Reserve Bank’s hand to some extent. We still hold the view that the SARB [South African Reserve Bank] may need to hike rates one last time in February by 50 basis points.”
‘Uncomfortably high levels’
South Africans have largely brushed aside interest rate hikes of 200 basis points to 9% since June, happily financing their spending with credit.
”Instalment credit demand is still increasing at a quick pace during November, although the total instalment credit is only 12,3% higher than in November 2005,” said Efficient Research economist Nico Kelder in an analyst note.
This tendency to spend on the back of fast economic growth in Africa’s biggest economy has pushed household debt to a record 73% of disposable income, adding to inflationary pressures.
”This [growth in credit extension] might also just be a function of banks trying to lend out as much as possible before the new credit act comes into play and the end of the spending season is a good opportunity to do just that,” said Glynos.
South Africa will have a new law governing credit from June next year in order to limit the ease with which people get into debt.
South African Reserve Bank governor Tito Mboweni has previously referred to banks’ aggressive lending as ”madness” that needed to be stopped, and warned that debt levels are ”worrying”.
Analysts said the growth in money supply, although higher than expected, had not risen enough from the previous month to be a worry.
”The acceleration in M3 money supply could be a result of companies building cash balances to pay December bonuses,” said Nyiko Mageza economic strategist at Absa Capital.
”The only significant thing we can take away from this is that both money supply and credit are still growing at uncomfortably high levels,” he said.
Friday’s data follows trade figures on Thursday that showed the country’s trade deficit stood at a massive R10,5-billion in November, down from a record R12,9-billion in October — showing that consumer demand remains robust. – Reuters