/ 28 November 2008

October credit growth slows less than expected

South Africa’s private sector credit growth slowed only slightly in October, official data showed on Friday, dampening expectations of an imminent interest rate cut.

Central bank data showed private sector credit growth dipped to 16,17% in October from a year earlier, its lowest level since early 2005, following a downwardly revised 16,28% in September.

But the slowdown was not as sharp as expected, with economists forecasting growth to slow to 15,4% as high interest rates deter households and companies from taking up more debt.

During the same month, growth in the broadly defined M3 measure of money supply accelerated to 15,59%, compared to 15,23% previously. A Reuters poll predicted growth of 14,9%.

Analysts said while credit growth had slowed, the fall was not fast enough to add to arguments for a rate cut in December.

”Its not a good figure; higher than expected,” Efficient Group economist Fanie Joubert said.

”We’ve seen nice [moderating] inflation figures this week, but credit growth is still relatively high. This could unfortunately be a reason we don’t see a rate cut in December, but in February.”

Data showed on Wednesday inflation slowed for the second consecutive month in October, lifting expectations that the central bank could cut rates as early as next month.

Most analysts are looking for the central bank to start cutting rates in early 2009, after raising them by a total of five percentage points since June 2006, but the market is pricing in a cut at the December 10 to 11 policy meeting.

Credit growth is still significantly slower than rates seen early this year, and the data also confirmed the downward trend is still intact.

Reserve Bank Governor Tito Mboweni told diplomats late on Thursday the inflation outlook had improved and policymakers had to take into account a slowdown in growth when making their decision.

But he reiterated that a weak rand, which had depreciated about 30% this year in line with other emerging market currencies against a strong dollar, was a risk.

By 6.39am GMT, the currency was trading at 9,9650 compared to 9,91 before the data was released. The yield on the benchmark 2015 bond ticked up to 8.27 percent from 8,24%.

Fanie Joubert, senior economist from Efficient Group, said: ”There could be some speculation in the housing market with expectations of rates turning. Despite the nice inflation numbers this week, this could be one reason why rates are only cut from February.”

Shireen Darmalingam, economist from Standard Bank, said: ‘While growth in M3 picked up steam and growth in PSCE slowed almost negligibly, the pace of increases in most credit components seems to be running low on fuel, with a more rapid slowdown envisaged in the coming months. However, risks remain that growth may not slow as rapidly as envisaged as adjustment and restructuring of balance sheets normally take time. – Reuters, Sapa