South African private sector credit demand accelerated in February, denting expectations that the central bank will not need to raise interest rates next month.
Reserve Bank data showed on Friday that private-sector credit extension grew 26,12% year-on-year (y/y) in February, from 24,83% in January, clouding the interest-rate outlook in Africa’s economic powerhouse.
Tame inflation data released earlier in the week had boosted the likelihood that rates would remain on hold.
The broadly defined M3 measure of money supply grew by an annualised 22,9% in February, also faster than forecasts, compared with a downwardly revised 22,05% in January.
Economists polled by Reuters had forecast that credit growth would slow to 24%, while annual growth in M3 — often a pointer to inflation pressure in the economy — was expected to grow by 20,9%.
”This continued buoyancy in money supply and private sector credit extension is seen by some as a possible motivation for additional monetary policy tightening,” Standard Bank economist Shireen Darmalingam said.
”However, the devil is in the detail; a closer look at the data reveals that the strong growth in the total data masks a noticeable slowdown on the household side of the equation,” she said in an analyst note.
Lending still ‘reckless’
After reaching a record 27,48% year-on-year last October, private-sector credit demand had showed signs of abating as a result of interest-rate hikes totalling 200 basis points last year.
The Reserve Bank raised rates to curb credit-driven spending and keep targeted CPIX inflation within a 3% to 6% percent range.
The central bank left the repo rate unchanged at 9% in February, saying the inflation outlook had improved. But governor Tito Mboweni warned recently that lending remained ”reckless” and that he might hike commercial banks’ reserve requirements.
Some analysts have said such a move could be an alternative to interest rate hikes.
”[Today’s] numbers are higher and stronger than expected, especially on the PSCE side, which is of some concern especially given comments by Tito Mboweni recently,” ETM economist Monica Ambrosi said.
”He has continued to send out warnings to consumers to stop spending heavily and banks to stop lending heavily. Clearly, some Reserve Bank action will be forthcoming towards the banks in terms of reserve-requirements adjustments.”
Faster economic growth in Africa’s biggest economy has been driven largely by domestic demand, but spending has pushed household debt to a record 73,25% of disposable income, adding to inflationary pressures. — Reuters