Growth in demand for credit by South Africa’s private sector reached its lowest level in more than five years in July, supporting a case for another interest rate cut before the end of the year.
Central bank data showed on Monday that private sector credit extension slowed to 3,4% year-on-year in July, from 3,98% in June and not far from a market consensus of 3,45%.
During the same period, growth in the broadly defined M3 measure of money supply braked to 5,78%, compared with a revised 6,07% previously, also close to market expectations of 5,7%.
South Africa’s first recession in 17 years, job insecurity and high debt levels have seen households cut back on taking on further loans in the past two years, while companies have also curbed their appetite for credit.
After stricter rules to govern credit were introduced on June 1 2007, banks cut back on the number of loan applications they approve and rising bad loans have added to the frugality.
In an effort to stimulate the economy, the central bank has cut the repo rate by 500 basis points to 7,0 since December, the latest 50 basis point cut coming early in August after a pause in June and no meeting in July.
Analysts said credit demand was likely to remain weak for longer and supported the case for the central bank to cut interest rates again.
”We expect the credit cycle to turn towards the middle of next year. Consumers are using the relief from rate cuts to pay down debt rather than going out to get more. You are going to need confidence about jobs to come back,” said Carmen Altenkirch, economist at Nedbank.
”We think we have another 50 basis points rate cut to go but it will probably be in October. One tends to find longer pauses towards the end of the cycle as the economy sends mixed signals.”
The rand was trading at 7,8057 against the dollar at 07.00GMT, from 7,8060 before the data was released at 06.00GMT. The yield on the 2015 government bonds was at 8,175%, from 8,18%. — Reuters