The continued strong rises in credit extension provided little counter to the shocking inflation figures released on Wednesday and the chances of an interest-rate hike next week now seemed an almost assured fact, the Efficient Group said on Thursday.
This comes after the SA Reserve Bank released both the October monetary aggregates and credit extension figures.
Money supply growth cooled to 23,39% year-on-year from 24,9% in September.
However, the demand for credit by SA’s private sector (PSCE) dropped only marginally to 22,27% year-on-year in October from 22,46% in September.
”The continued cooling in the rise of private credit extension is a positive indication; however the level remains a worrying factor,” the Efficient Group said.
Credit extension to the private sector has displayed increases of more than 20% year-on-year, since January 2006.
”This continued strength provides little counter for more rate hikes to come especially given that the CPIX figures are remaining out of the inflation target and are rising by shocking margins currently.
”Adding woes to this is the strong third quarter GDP figures released earlier this week which also shows that the higher rates are currently having little effect on growth,” the Efficient Group said.
Nedbank’s economic unit said that growth in both broad money supply and private sector credit extension had eased moderately.
However, it said that the pace was probably too slow for the Reserve Bank to be confident that credit demand had responded sufficiently to higher interest rates.
”The bank will probably continue their steadfast focus on inflation and inflation expectations.
”If yesterday’s [Wednesday’s] surprising inflation figures are anything to go on, neither inflation nor inflation expectations will improve anytime soon,” Nedbank said.
This made another hike in December look like ”a near certainty”.
‘Out of control’
Mike Schussler, an economist at T-Sec said of the PPI figure: ”Everything is saying that we have higher growth, a huge amount of inflation and that credit extension is still strong. We are in a higher inflationary environment and there is no doubt in my mind that we will see higher interest rates in the next few months.
”In a sense, we could say inflation is spiralling out of control.”
Russel Lamberti, an economist at ETM said the figure was ”a lot higher than we expected”.
”The [PPI] data, together with CPI numbers yesterday [Wednesday], confirms a rate hike in December and if the trend continue like this the possibility of a rate hike early next year is becoming a factor that people are starting to consider.”
Ridle Markus from Absa said the figure was above expectations and this is not good news that PPI is slightly higher.
”Given yesterday’s inflation numbers, we were hoping for a nice positive surprise on PPI. But the fact that it increased 1,1% on a month-on-month basis, means cost pressures continue in the production side of the economy which continues to put pressure on the retail side, and this confirms our view that interest rates will be hiked in December.” – Sapa, I-Net Bridge