Demand for credit from South Africa’s private sector grew in annual terms for a second month in June, but the rise was below forecast and still minimal, bolstering the case for another cut in interest rates.
After eight consecutive months of decline, credit demand rose 0,92% year-on-year compared with 0,8% growth in May, while the M3 measure of money supply accelerated to 2,41% year-on-year from 1,4% previously.
But analysts had forecast growth of 1% and they said the still anaemic rise suggested that the central bank should have cut rates at its monetary policy meeting last week, when it kept rates steady.
“It’s still quite [a] weak [number], it’s not strong growth. I think it points quite conclusively towards further monetary easing by the Reserve Bank,” said Colen Garrow, an economist at Brait.
The South African Reserve Bank halted interest rates at a three-decade low of 6,5% in March after cutting by a total of 550 basis points in an easing cycle stretching back to December 2008.
Governor Gill Marcus cited a continuing recovery in growth as proof that further stimulus was not yet needed. But some analysts have said the bank is likely just waiting for the previous cuts to have an impact before cutting some more.
Consumer spending is slowly recovering from a slump experienced last year. However households are still highly indebted and not feeling confident enough to borrow more.
Unemployment remains a concern in South Africa, where more than 25% of the labour force is out of work, and a further 61 000 jobs were lost in the second quarter, according to Statistics South Africa data.
“Demand for loans may have also been negatively affected by the continued high levels of household debt, which measured 78,4% of disposable income in the first quarter of 2010,” Marcus said of the weak demand for credit. — Reuters