Credit growth quickens, clouds rates picture

Growth in demand for credit by South Africa’s private sector accelerated to 23% in January, official data showed on Friday, raising the chances interest rates may have to rise again.

Figures from the Reserve Bank showed that year-on-year credit growth quickened from an upwardly revised 21,57% in December, while the broadly defined M3 measure of money supply rose to 25,16% in January from a downwardly revised 23,64%.

A Reuters poll forecast that private sector credit growth would come in at 21,1%, while the annual growth in M3—which often points to inflationary pressures in the economy—was seen at 23,9%.

“It’s worse than we expected ... After the higher-than- expected inflation, and probably higher PPI numbers that have been postponed now, this is not good news,” said Dawie Roodt, an economist at Efficient Research.

“Technically, the Reserve Bank has to increase interest rates again. I don’t know if they’re going to do that because of the current international volatility and because of the local electricity debacle we are currently facing,” he added.

The central bank left its key repo rate unchanged at 11% in January, after lifting it by a cumulative four percentage points since June 2006, heeding calls that further hikes would hurt economic growth.

The economy is expected to growth by just 4% in 2008 after averaging 5,1% over the previous four years, partly due to a debilitating electricity shortage that has left key miners operating with 90% of the power they would normally need.

Monetary tightening has failed to rein in inflation, with data on Wednesday showing the main CPIX measure surged to a near five-year high of 8,6% in December, staying above a targeted 3% to 6% range for the 10th month in a row.

The rand was weaker at 7,6174 against the dollar from 7,61 before release of the data at 6am GMT.
The yield on the benchmark 2015 government bond rose slightly to 8,96% from 8,945%.

Economic growth has been driven mainly by credit-fuelled spending, which has left households indebtedness at a record 77,5% of disposable income in the third quarter of 2007. - Reuters

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