SA credit demand falls, corporates weigh

Demand for credit from South Africa’s private sector fell more than expected in April, reflecting companies’ reluctance to borrow further in an uncertain economic environment.

Companies have mostly given a cautious outlook for this year and sales remain under pressure as demand in Africa’s biggest economy continues to be weak.

The central bank said on Monday credit demand fell by 0,86% year-on-year in April — the eighth monthly decline in a row — more than the 0,4% fall seen in a Reuters poll last week. Demand had contracted by 0,69% in March.

“Weakness comes from the corporate sector and we expect that to continue while domestic demand recovers quite slowly,” said Ian Marsberg, macro strategist at Absa Capital.

“The slow uptick on the household side doesn’t really change our view on interest rates which we expect to remain at current levels till the first half of next year.”

The central bank left the repo rate unchanged at a three-decade low of 6,5% in May, after reducing rates by 550 basis points between December 2008 and March this year.

South Africa’s first recession since 1992 last year shed more than a million jobs and households are highly indebted. Analysts expect that even the uptick in household demand is going to be slow and credit demand will be weak throughout this year.

The central bank also said April growth in the broadly defined M3 measure of money supply quickened slightly to 1,67% year-on-year compared with 1.55 percent previously. The market was expecting M3 growth to rise to 2%.

The rand’s reaction was muted. It was trading at 7,6190 against the dollar at 6.47am GMT, from 7,61 before the data was released at 6am GMT. – Reuters

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