The private credit extension figures released last week show that over indebted consumers are staying away from taking on further debt despite the latest interest rate cut.
According to a report by Nedbank’s group economic unit “consumers remain reluctant to take on additional credit, despite low interest rates and confirm our view that the recovery remains fragile”.
Mortgages are one of the major components of credit extension and this slowed in March when compared to February (from 3,9% to 3,6%) suggesting that although conditions in the housing market have begun to stabilise and banks have loosened credit criteria slightly, demand for mortgages remained modest.
Nedbank says household finances and confidence should gradually improve as the year progresses, as interest rates remain low, debt eases to more manageable levels and household income slowly improves on better employment and pay prospects.
The report says there are already signs that employment levels are stabilising, with the economy creating some jobs in the final quarter of last year.
“While significant job creation is unlikely, the worst of the retrenchments are probably over and employment is expected to remain relatively steady in 2010. As a result, household demand for credit is expected to stabilise as 2010 progresses.”
Nedbank believes that despite Reserve Bank Governor Gill Marcus’ comments last week which largely rule out a cut at May’s meeting, this set of figures suggests that the recovery is still fragile and that the credit cycle has not yet turned convincingly.
This means there is “still some scope for easier policy in the third quarter unless economic circumstances change for the better”.
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