Demand for credit by South Africa’s private sector registered the first annual growth in eight months in May but was up only marginally, in a sign consumers remain wary of debt despite rising spending patterns.
But the swing into positive territory, coupled with data showing retail sales are also slowly recovering after last year’s economic downturn, could see the central bank leave interest rates unchanged at next month’s policy meeting.
Credit demand rose by 0,8% year-on-year in May, after a 0,86% decline in April, Reserve Bank data showed on Wednesday, while growth in the broadly defined M3 measure of money supply slowed to 1,4% from 1,67% previously.
“It sure is nice that credit is growing on a year-on-year basis again … which is helpful. It’s not growing very strongly but you go slowly before you go a little bit better,” said Jeff Gable, head of research at Absa Capital.
“What we saw with the national accounts is that even without credit extension, real household spending is rising at a fairly firm pace … [households] are able to spend from their own pocket rather than from borrowing from the banks,” he added, referring to recent data showing a rise in household demand.
Credit demand has been depressed over the past year as South African households struggle with heavy indebtedness and after nearly a million jobs were lost during recession last year, the country’s first since 1992.
The South African Reserve Bank cut the repo rate by 550 basis points to 6,5% between December 2008 and March this year to boost demand, which had been a key driver of economic growth prior to the recession.
But Reserve Bank Governor Gill Marcus has said rates will remain stable for some time, although this will depend on economic developments.
“From a policy point of view I think this [credit data] is probably neutral. We’ve seen a recovery in retail sales, but it is not credit driven. In my view it’s still along the lines of steady type credit demand,” said Thebe Securities economist Monale Ratsoma. — Reuters