Demand for credit by South Africa’s private sector fell for the third consecutive time in the year in December, showing spending by households and companies remains subdued and backing the case for lower interest rates.
Consumers in Africa’s biggest economy remain wary of debt in the aftermath of the country’s first recession in two decades last year, which slashed nearly one million jobs.
Central bank data on Friday showed that credit demand shrank by 0,76% year-on-year in December after a record contraction of 1,59% in November and the previous month’s 0,42% drop — the first decline in more than 40 years.
Growth in the broadly defined M3 measure of money supply, however, quickened to 1,62% compared with 0,58% year-on-year growth in November.
“The numbers are clearly not too far off consensus and I think overall it doesn’t show any change in the underlying dynamics driving money supply and credit, which are that they remain very subdued, very benign,” said Russell Lamberti, strategist at market analysts ETM.
“We are likely to see a very stable money and credit environment at least for the first half of this year and possibly even for the whole of this year. Overall we think that is going to continue to act to drag down inflation and keep calls for further interest-rate cuts intact.”
The central bank left the repo rate unchanged at 7% on Tuesday, the fourth consecutive time it has held rates after slashing them by 500 basis points between December 2008 and August last year to help the economy back onto its feet.
The central bank said proposed electricity tariff increases of 35% over the next three years posed the greatest risk to the inflation outlook.
But Governor Gill Marcus left the door open for a rate cut, saying some of the bank’s seven-member policy committee had argued strongly for a reduction to help South Africa’s debt-laden households. — Reuters