Growth in demand for credit by South Africa’s private sector quickened in the year to June, data showed on Tuesday, undermining the case for interest rates to be left on hold next month.
The Reserve Bank has increased rates by a total of 500 basis points since June 2006, partly to curb credit-driven consumer demand that was adding to inflationary pressure.
Household indebtedness rose to a record 78,2% of disposable income in the first quarter of 2008.
Tuesday’s central bank data showed private-sector credit growth was faster at 20,28% year-on-year in June from 19,74% in May, breaking a recent downward trend.
Expansion in the broadly defined M3 measure of money supply, however, slowed to 20,12 % compared with 20,90% previously.
”That [credit figure] is not good. There was that argument that interest rates could be left on hold and one of the reasons was that credit growth has been coming down,” said Efficient Group economist Fanie Joubert.
”This is now a change in the trend, which is not good. At this stage credit extension moves from being a reason why interest rates should not be moved to why they should be lifted more; that’s a big problem. In general, not a good figure, especially two weeks before the MPC [Monetary Policy Committee meeting].”
The central bank’s MPC next meets on August 13 and 14 to mull interest rates. The market will also be looking to consumer and producer inflation data on Wednesday and Thursday for pointers on what its decision will be.
The CPIX (consumer inflation less mortgage costs) consumer gauge target for monetary policy stubbornly held above the central bank’s 3% to 6% band for the 14th straight month in May, jumping to a five-and-a-half-year high of 10,9% year-on-year. — Reuters