Rate hike looks even more likely

2008-05-01 00:00

PRIVATE sector credit extension (PSCE) grew significantly in March 2008, rebounding from slower growth during a quiet February and providing further ammunition for yet another interest rate hike next month.

Growth in credit extension came in at 22,62% year on year, up from 20,79% year-on-year growth in February.

Although consumers continued to borrow at a brisk pace, it appears that the main drivers of the growth are loans to companies.

The figure is above analysts’ forecasts of between 20,5% and 21%.

In addition, the latest SA Reserve Bank statistics reveal that year-on-year growth in M3 money supply came in at 21% year on year in March, fuelled largely by the robust credit extension to the private sector.

M3 data is viewed as the country’s broad money supply indicator and a possible indicator of future inflation data.

Interestingly, economists note that the slowdown in the growth of M1 money supply in March — 15,51% year on year from 21,48% in February — indicates that consumers are holding less cash on hand.

Although consumers continue to borrow more, they do so in order to compensate for rising inflation so as to maintain a certain standard of living. This implies that they are spending more in nominal terms and not in real terms.

Efficient Group economist Fanie Joubert expressed concern over the fact that categories such as other loans and advances — including overdrafts and credit cards — have become an ever greater problem.

This item recorded growth of 29,5% year on year in March from 23,9% in February.

Nedbank’s group economic unit — which expects interest rates to rise by half a percent next month — noted that the extent of additional hikes will depend on the future course of oil and food prices, the rand and electricity tariff increases granted to Eskom.

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