South Africa’s credit and money supply growth eased in August, while the monthly trade deficit shrank, giving the central bank more reasons to leave interest rates unchanged next week.
Reserve Bank data showed on Tuesday demand for credit from the private sector rose 18,64% from a year earlier, slowing from 19,81% in July. Money supply growth slowed to 15,42%, its lowest in about three years.
The data will ease some of the central bank’s concerns about soaring inflation before its policy meeting on October 8 and 9.
”Money supply growth coming in at 15,4% is very soft. So, at least there is a move in the right direction and that will confirm that the next move in interest rates is down,” George Glynos, managing director at market analysts ETM, said. Falling retail and new vehicle sales show that consumers are beginning to feel the pinch from interest rate rises which have lifted the key repo lending rate rise to 12%, up by a total of five percentage points since June 2006.
The central bank left the repo unchanged in August citing a better inflation outlook and slowing demand but inflation has come in higher than expected since then.
The targeted CPIX hit a record 13,6% year-on-year in August and Reserve Bank Governor Tito Mboweni has sounded a hawkish warning note on price pressures.
However, inflation is widely expected to cool in 2009, helped by a reweighting of the basket and most analysts see rates falling from about April next year.
”As expected, growth in credit demand moderated further, providing more evidence of weaker consumer demand, which, coupled with the improved the short-term outlook for inflation, should help to keep interest rates steady for the remainder of the year,” Nedbank said in a report.
Vulnerable
A fall in the monthly trade deficit may also offer some relief, although the gap remains relatively large, suggesting another large current account shortfall this year.
The South African Revenue Service said the trade deficit narrowed to R5,12-billion in August from July’s nine-month high of R14,3-billion, largely due to a big fall in oil imports.
”It’s indicating pressure on the balance of payments, on the current account deficit and it’s probably more related to the spend on infrastructure mostly,” Brait Merchant Bank economist Colen Garrow said.
A weaker rand this year may help to boost exports, but a massive government capital expenditure programme means imports are expected to remain high, leading to a large current account deficit.
The current account shortfall eased to 7,3% of gross domestic product (GDP) in the second quarter from 8,9% previously. It stood at a 36-year high of 7,3% for 2007.
The deficit makes South Africa, and its currency, vulnerable to deteriorating global sentiment, and waning capital inflows.
The rand tumbled almost 4% against the dollar on Monday, hit by a rise in risk aversion after United States lawmakers rejected a $700-billion plan to rescue troubled banks.
It recovered some ground on Tuesday, rising together with local stocks and government bonds.
Some investor concerns have also been about change in Africa’s biggest economy after President Kgalema Motlanthe replaced the ousted Thabo Mbeki last week.
Finance Minister Trevor Manuel told the BBC’s Hard Talk programme the new leadership remained committed to current macroeconomic policies.
”The [ruling] ANC’s views have been, consistently, that macroeconomic stability is the key to sustainable development and growth,” he said. – Reuters