Get more Mail & Guardian
Subscribe or Login

SA credit growth slows, giving bank room to cut rates

South African bonds overlooked a weaker rand to open firmer on Friday after credit extension and money supply data surprised to the downside. This adds more weight to calls for a 100 basis point cut in interest rates next week.

Early on Friday the short-term government R153 bond was at 6,820% from its previous close of 6,855%. The medium-term R157 was at 7,320% from a previous 7,350%, while the long-term R186 was at 7,750% from 7,775%.

The rand was last at 10,0647 to the dollar from a previous close of 10,0160.

Following a CPI reading of just 10,3% on Wednesday and a PPI reading of 11,0% on Thursday, further good news was in store on Friday with lower than expected credit and money supply data. This data is another key reading for the monetary authorities, who make their next rates decision on Thursday next week.

Credit extension to the private sector (PSCE) grew at a rate of 14,04% year-on-year in December from 15,30% in November, the South African Reserve Bank said on Friday.

The rate of growth of South Africa’s broad M3 money supply measure rose by 14,53% in the year to end-December from 16,26% in the year to end-November.

The rate of growth in credit extension was expected to have increased at 15,4% year-on-year, according to I-Net Bridge’s Econometer.

South Africa’s broad M3 money supply aggregate growth rate, meanwhile, was expected to have increased at 16% year-on-year.

“This is a good figure for the first time in a long time,” said Fanie Joubert, an economist from Efficient Group.

“The one item we have been worried about is other loans and advances — which includes credit cards and overdrafts — and this came down by R16-billion. It is a huge drop and is probably the biggest one on record — at least, according to my data since 1994. This data, together with the inflation numbers this week, leads us to feel that a 100 basis point cut in interest rates is justified next week.”

Jean Mercier, chief economist from Citigroup in South Africa, agreed: “These are great figures and are weaker than I expected. It seems there was weaker activity by the corporate sector and loans to households are continuing to slow. The central bank has room to cut interest rates from current levels.”

These expected cuts are good news for bond prices, which gain ground as yields drop to meet the changing supply and demand dynamics ushered in by lower lending rates.

Foreigners were net buyers of R677-million worth of South African bonds on Thursday after net purchases of R1,360-billion worth of local bonds on Wednesday, Bond Exchange of South Africa statistics show.

Nominal cumulative volume was R45,438-billion on Thursday from R59,026-billion on Wednesday. — I-Net Bridge

Subscribe for R500/year

Thanks for enjoying the Mail & Guardian, we’re proud of our 36 year history, throughout which we have delivered to readers the most important, unbiased stories in South Africa. Good journalism costs, though, and right from our very first edition we’ve relied on reader subscriptions to protect our independence.

Digital subscribers get access to all of our award-winning journalism, including premium features, as well as exclusive events, newsletters, webinars and the cryptic crossword. Click here to find out how to join them and get a 57% discount in your first year.

Evan Pickworth
Guest Author

Related stories

WELCOME TO YOUR M&G

If you’re reading this, you clearly have great taste

If you haven’t already, you can subscribe to the Mail & Guardian for less than the cost of a cup of coffee a week, and get more great reads.

Already a subscriber? Sign in here

Advertising

Subscribers only

Fears of violence persist a year after the murder of...

The court battle to stop coal mining in rural KwaZulu-Natal has heightened the sense of danger among environmental activists

Data shows EFF has lower negative sentiment online among voters...

The EFF has a stronger online presence than the ANC and Democratic Alliance

More top stories

Mkhize throws the book at the Special Investigating Unit

It’s a long shot at political redemption for the former health minister and, more pressingly, a bid to avert criminal charges

Pockets of instability in Kenya are underpinned by unequal development

Stability in Kenya hinges on a just, equitable distribution of resources, and a commitment to progress human development for the marginalised

Eastern Cape premier Mabuyane lives large amid province’s poverty

Oscar Mabuyane and MEC Babalo Madikizela allegedly used a portion of state funds for struggle icon Winnie Madikizela-Mandela’s commemoration for their own benefit
Advertising

press releases

Loading latest Press Releases…
×