Credit growth may bring new rate hike

2008-07-29 00:00

The fairly healthy growth in credit extension to the private sector in June 2008 has kept alive the argument for a further interest rate hike next month.

However, according to economists, tomorrow’s consumer inflation data will probably provide a better indication of interest rates in the short-to-medium term.

The latest figures yesterday show that the 20,3% year-on-year growth in credit extension to the private sector last month came on the back of a rise in volatile loans and advances, including facilities such as credit cards and overdrafts.

Private sector credit extension in May rebounded somewhat to 19,7% year on year after a slow April.

Said economist Fanie Joubert at the Efficient Group: “The inflation data now become even more important as higher-than-expected figures on that front could be the tipping point towards a further hike. Despite the bad news, there remains a long list of countering factors (including a serious slowdown in retail and motor trade sales) and indications that the economy is reacting to the rate medicine it received …”

Growth in asset-backed credit moderated to 18,6% year on year in June. Rising interest rates and the after-effects of the National Credit Act continue to hurt mortgage growth. The growth in mortgages was softer at 19,9% year on year in June 2008, compared with 20,6% growth in May 2008.

The growth in M3 money supply, the broad money supply indicator and a possible indicator of future inflation data, was again softer at 20,1% year on year in June, from 20,9% in May.

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