Demand for credit by South Africa’s private sector fell for the first time since 1966 in October, pointing to tight credit conditions that will lead to a slow economic recovery from recession.
The central bank said on Monday credit demand fell by 0,42% year-on-year in October from a 1,49% growth in September. Economists had forecast a rise of 0,21% in a Reuters poll last week.
During the same period, growth in the broadly defined M3 measure of money supply braked to 2,67% from 4% previously, compared with a consensus of 3,3%.
South Africa exited its first recession in almost two decades in the third quarter but the recovery is expected to be slow as household and company finances are tight.
Rising unemployment, high debt levels and tough trading conditions have seen companies and households curb their appetite for more loans.
”Essentially it is still a reflection of what’s going on on the corporate side. There is still a fall in credit on that side. It’s also still a reflection of the weak state of domestic economic activity,” said Ian Marsberg, macro strategist at Absa Capital.
The central bank cut interest rates by five percentage points between December 2008 and August to help stimulate the economy but left them unchanged at its last three meetings.
Marsberg said with the economy remaining weak, interest rates are likely to remain flat until late next year.
”I think interest rates will remain at this current level until about the fourth quarter of next year and we only expect interest rates to start rising then. So it’s essentially a story of interest rates remaining at low levels for an extensive period of time.” — Reuters