South Africa’s credit demand growth eased more than expected to a five-year low in June, data showed on Wednesday, reinvigorating debate about the scope for interest rate cuts.
Central bank data showed growth in demand for credit from the private sector braked to 3,98% year-on-year, its lowest level since April 2004, from 5,7% in May.
During the same period, the broadly defined M3 money supply growth slowed to a near nine-year low of 6,04%, compared with a revised 7,86%.
Credit and money supply growth has fallen sharply over the past two years, with the slowdown gathering speed in the last year, with Africa’s biggest economy now in its first recession in nearly two decades.
New and tighter credit laws have also crimped lending to households that have felt the pain of five percentage points in interest rate hikes between June 2006 and June 2008.
The central bank’s has cut its repo rate by 450 basis points to 7,5% since December but paused last month on worries about inflation.
Analysts said Wednesday’s data may add voice to calls for another rate cut, although inflation remains a worry, particularly with trade unions demanding high wage increases.
”[Credit growth was] weighed down quite heavily by rising unemployment, job insecurity, combined with financial strain and much stricter lending criteria,” said Nedbank economist Carmen Altenkirch, adding there was still room for more rate cuts.
But others said the Reserve Bank would want to see a marked slowing in inflation before resuming the cutting cycle, particularly with economic growth expected to pick up next year.
”Overall we had been expecting a weaker number to come out today but it doesn’t change our view that the Reserve Bank will leave interest rates unchanged in August,” Absa Capital macro strategist Ian Marsberg said.
Consumer inflation numbers for June are due out later on Wednesday.
A Reuters poll forecast that private sector credit growth would come in at 4,55% in June, while the annual growth in M3 was seen at 6,8%. – Reuters