Growth in demand for credit by South Africa’s private sector slowed in the year to the end of December, boosting the view that the central bank need not hike interest rates next month to curb inflation.
Data from the South African Reserve Bank on Tuesday showed that private-sector credit extension (PSCE) braked to 25,81% in December, compared with 26,77% in November, slightly below economists’ forecasts of a 25,95% expansion.
The broadly defined M3 measure of money supply grew by 21,93% in December, also slower than forecasts, from November’s 25,33%.
Economists said this, coupled with recent unexpectedly tamer inflation data, lessened the likelihood of further tightening when the Reserve Bank’s monetary policy committee (MPC) meets early in February.
Reserve Bank Governor Tito Mboweni has warned that debt levels are worrying and the central bank hiked its key repo rate by 200 basis points to 9% in four stages last year in a bid to tame runaway consumer spending.
”The rate of increase in money supply and PSCE does not support a repo-rate increase [although] individual credit data suggests that this may not be as clear-cut as the overall number suggests,” said Nico Kelder, economist at Efficient Research.
”But the MPC may require a more rapid pace [of decline in PSCE]. Our opinion is that interest rates will remain unchanged — this will support the continued positive business sentiment while consumer credit slows,” he added.
Second consecutive slowdown
December’s slowdown was the second in as many months after credit-growth demand rose by a record 27,48% in October.
While demand for credit still remained robust at present levels, analysts said trends pointed to a steady decline.
”Ongoing securitisations and high bases aside, these figures show that credit growth has peaked,” said Adenaan Hardien, analyst at African Harvest.
The case to leave rates unchanged received a boost last week when producer price inflation data was unexpectedly lower at 9,3% for the year to December, while the CPIX consumer price index held steady at 5%, below the projected 5.1 percent.
Some economists, however, felt another half a percentage point hike could be in the offing next month, as the central bank strives to contain CPIX inflation within a targeted 3% to 6% band.
”We are still going for a 50-basis point interest rate hike, but what the data does do is to confirm that the 50-basis point hike could be the last,” said Econometric Treasure Management economist George Glynos.
Faster economic growth in Africa’s biggest economy has been driven largely by domestic demand, but spending has pushed household debt to a record 73% of disposable income, adding to inflationary pressures. — Reuters