/ 27 February 2009

January credit growth slows, backs rate cut

Growth in demand by SA's private sector slowed in January as household finances remained tight, adding weight to the argument for a rate reduction.

Growth in demand by South Africa’s private sector slowed markedly in January as household finances remained tight, adding weight to the argument for further interest rate reductions.

The central bank said on Friday growth in demand for credit by the private sector slowed to 11,85% year-on-year in January, lower than forecasts of 12,5%, from a revised 13,6% in December.

The broadly defined M3 measure of money supply braked to 12,91%, compared to a revised 13,64% previously. The market was expecting the figure at 13,85.

Households, which drove economic growth between 2003 and 2007, have come under a lot of pressure after interest rate rises totalling 500 basis points between June 2006 and June 2008.

The central bank’ Monetary Policy Committee (MPC) started to loosening policy in December and has since cut the repo rate by 1,5 percentage points to 10,5%, on the back of depressed demand and a downward trend in inflation.

Central bank Governor Tito Mboweni on Thursday did not rule out an emergency monetary policy meeting after economic growth shrunk for the first time in a decade. Mboweni hinted on February 6 the MPC could meet earlier than its scheduled meeting in April.

Analysts said the credit data supported more rate cuts.

”This is a very good number and the Reserve Bank has no reason not to continue reducing interest rates,” said Dawie Roodt, economist at Efficient Group.

Household debt as a ratio of disposable income has moderated and demand for loans is expected to slow further over the next few months.

”We could see in the coming few months that money supply and credit growth figures decline further, which is part of the central bank’s goal of limitting spending and credit growth,” said Christie Viljoen, economist at NKC Consulting.

The rand was at 9,9250 at 6.52am GMT, from 9,9155 before the data was out at 6am GMT, while the yield on the 2015 government bond rose to 7,95%, from 9,885%. – Reuters