Demand for credit slows

2011-02-28 07:36

Growth in credit demand by South Africa’s private sector slowed to 5.01% year-on-year in January, compared with a slightly revised 5.56% in December, central bank data showed today.

Growth in the broadly defined M3 measure of money supply accelerated to 8.19% year-on-year compared with 6.92% in December.

Twelve analysts surveyed by Reuters forecast private sector credit would expand by 5.88% year-on-year in January.

Growth in M3 was seen at 8.3% year-on-year.

ANALYST COMMENTS
DENNIS DYKES, CHIEF ECONOMIST, NEDBANK
“Overall, I don’t think the numbers are too bad. There have been steady increases across most categories. It won’t impact much on a possible rise in interest rates but if we see credit rise, interest rates could increase.”

ELNA MOOLMAN, ECONOMIST, RENAISSANCE BJM
“The growth was slower than expected but this was mostly because of a sharp decline in the volatile investments category. If we just look at credit and for example loans and advances, then the performance was in line with expectations and generally quite robust.”

KAMILLA GOLDA, ECONOMIST, ETM
“It was much weaker than expected and it continues to highlight the weak appetite for taking on more credit. In month-to-month terms both money supply and credit growth contracted. The benign monetary environment is supportive of lower inflation going forward.”

MARKET REACTION
The rand was slightly firmer at 6.99 against the dollar at 8.43am from 7.0065 before the data was released at 8am. The yield on the benchmark 2015 government bond dipped to 7.765% from 7.785% beforehand.

BACKGROUND
- Credit demand growth has been in positive territory since May last year, but its recovery is expected to remain fairly subdued as companies are hesitant to borrow further in an uncertain growth environment.

- Household debt to disposable remains near record highs and the labour market continues to be of concern after about a million people lost their jobs in 2009. Unemployment is currently around 24%.

- The South African Reserve Bank left the repo rate steady at 5.5% at its last monetary policy meeting, signalling a break from a loosening cycle that started in December 2008 as the economy stayed on a recovery path.?

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