‘Strong borrowing still going on in the economy’

Growth in demand for credit from South Africa’s private sector slowed in September, but remained above forecasts, keeping up pressure for higher interest rates.

Credit growth eased to 22,46% year-on-year from an upwardly revised 23,16% in August, while money supply growth also eased to 24,94% after a sharp jump the previous month, data from the central bank showed on Monday.

But analysts said the slowdown was less than expected and would do little to temper worries that interest rates may have to rise again in December.

”On the balance it’s pretty disappointing. We expected slower growth, especially for credit extension, but it hasn’t slowed by as much as we would like to see,” ETM analyst Russell Lamberti said.

”I think this is evidence of strong borrowing still going on in the economy.”

Economists polled by Reuters forecast credit growth at 21,45% year-on-year, and money supply at 25,78%.

South Africa’s central bank has raised its repo rate by 150 basis points in three stages since June, taking the lending rate to 10,5% and total hikes since June last year to 350 basis points.

Sharply higher-than-expected consumer inflation data last week has raised speculation that it may raise rates again at the next policy meeting in December.

The targeted CPIX inflation gauge surged to 6,7% year-on-year in September, notching up the sixth consecutive monthly breach of its 3% to 6% range.

Inflation focus

Reserve Bank Governor Tito Mboweni warned after the last 50 basis point rate rise earlier in October that the bank remained focused on bringing CPIX back to within the band.

”The credit figures were slightly higher than expected … in general this just tells us that, given the bad inflation figures we received last week, the chance for a December rates hike still remains very much a possibility,” Efficient Research economist Fanie Joubert said.

The rand firmed after the data to trade at a fresh 17-month high of 6,4690 against the dollar at 7.24am GMT from 6,4950 before, extending gains on the session to 0,8%.

Stubbornly high credit and money supply growth has been a concern for the central bank, with consumers having largely shrugged off higher rates to lift household debt to a record 76,5% of disposable income.

A new credit law clamping down on lenders that came into force in June has so far made little impact on consumers’ appetite for loans, although the central bank has acknowledged there are signs of a slowdown among households in response to rate hikes.

”The slowdown is in line with this moderation that has been going on with the lending numbers, but that’s just exactly what it is, a moderation, not a collapse in credit lending,” Absa Capital macro strategist Monale Ratsoma said. – Reuters

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