Growth in demand for credit by South Africa’s private sector quickened to 24,92% year-on-year in June, data showed on Tuesday, hardening the case for another interest rate increase next month.
The Reserve Bank said credit demand growth was a touch faster than May’s 24,84% increase, while during the same period, the broadly defined M3 measure of money supply grew by 23,35% compared to 22,67% the previous month.
”These [credit] numbers are a lot higher than our expectations and what the market expected. We had thought we would see the effects of the NCA (National Credit Act) come through in these numbers. It looks like there is no effect at all,” said Russell Lamberti, economist at ETM.
Analysts had expected a new law clamping down on credit lending that came into force in June to have bolstered the central bank’s monetary tightening efforts.
”Our opinion is that this affects the interest rate outlook and we expect that they would be raised in August, because these numbers show that credit remains strong and robust,” Lamberti said.
A Reuters poll of 13 economists had forecast credit growth would slow to 23,9% while annual growth in M3 — which often points to inflation pressure building in the economy — was seen growing by 23,4%.
Official credit and inflation data have fluctuated in recent months, sending mixed signals on whether 250 basis points worth of rate increases by the central bank during the 12 months to June had succeeded in reining in credit-driven consumer demand.
The rand currency was last at 7,1025 against the dollar compared to 7,1160 before the data were released, while yields on the benchmark R157 were at 8,60% from 8,56% beforehand.
Growth in Africa’s biggest economy has been driven largely by domestic demand, but spending has pushed household debt to a record 76% of disposable income in Q1 2007, adding to inflationary pressures.
Targeted CPIX inflation came in above the central bank’s 3% to 6% band for the third month running in June, at 6,4% year-on-year, raising expectations that the central bank will raise its key repo rate by another 50 basis points to 10% on August 15 to 16. – Reuters