Demand for credit by South Africa’s private sector should brake in March in a delayed reaction to last year’s interest-rate increases, easing pressure on the central bank to resume raising interest rates.
The country’s trade deficit should, however, widen to R4,1-billion after narrowing to R2,7-billion in February as higher oil prices exert pressure on the import bill, a Reuters poll of 10 economists showed on Friday.
South African Reserve Bank Governor Tito Mboweni said earlier this month household spending and credit were not immediately inflationary, but warned that bank lending remained ”uncomfortably high”.
The central bank opted to keep its repo rate steady at 9% at its last two meetings — in February and April — after lifting the rate a cumulative 200 basis points in 2006 to help stem robust, inflationary consumer spending, largely fuelled by credit.
Economists surveyed agreed that last year’s tightening cycle could be starting to pay dividends, with growth in private-sector credit extension seen slowing to 24,76% year-on-year in March, after accelerating to 26,12% in February.
Limit debt
The M3 measure of money supply should also come in lower at an annualised 20,23% in March from 22,9% previously.
”The slower rate of credit extension is a reflection of the lag effects of tighter monetary policy that began in June 2006. Individuals are expected to continue limiting their debt exposure,” said Kabelo Masike, treasury economist at Eskom.
The overall indicator could consolidate at these relatively strong levels mainly on the back of higher activity by the corporate sector, Masike said.
”These relatively strong levels are more a reflection of the current robust economic growth and less a reflection of inflationary pressures gaining momentum.”
Some analysts believe the central bank erred in keeping rates on hold in February and earlier this month, but might be wary of raising them now — despite a surge in March consumer and producer inflation and even if next week’s data comes in higher — for fear of sending out confusing signals.
”If the figures are worse than our expectations, it will just be a further confirmation that the Reserve Bank made a mistake not increasing interest rates this month [but] it will be an even bigger mistake if they increase interest rates in June,” said Efficient Research economist Nico Kelder.
”They missed the opportunity. If they wanted to increase interest rates, it should have been done this month, because in June we would have reached the peak; inflation will start going down.”
Mboweni said earlier this month the targeted CPIX inflation measure, which hit a three-and-a-half year high of 5,5% year-on-year in March, was still not expected to breach the upper end of the bank’s 3%-to-6% range and would peak at 5,9%. — Reuters