Rates hikes squeeze borrowing

2008-04-02 00:00

The growth in private sector credit extension slowed relatively significantly in February to 20,8% year on year on the back of the knock-on effects of higher interest rates.

Well below its peak of 27,5% year-on-year growth in October 2007, the latest figure is also lower than economists’ forecasts of between 21,7% and 24%. It is also significantly below January’s year-on-year growth of 23%.

In addition, the latest SA Reserve Bank statistics reveal that the country’s broad money supply indicator — year-on-year growth in M3 — eased off to 21,1% from 25,2% in January.

Although the data provide some hope that the SA Reserve Bank’s Monetary Policy Committee will keep interest rates unchanged at its meeting next Thursday, FNB property strategist John Loos said the risk of another hike remains high.

Efficient Group economist Fanie Joubert added that the level of credit extension still remains high.

"We expect it to only dip below the 20% rise during the second quarter of 2008. Consumers will be pressured into using more credit as spending power continues to be eroded by broad based inflation pressure — notably for food and fuel. It seems as important as ever that consumers make a good analysis of their finances and try to build up a buffer against the rising price tide, especially as we are very likely in for another rate hike next week," said Joubert.

Nedbank’s group economic unit noted that the recent collapse in leasing finance has continued.

"Instalment sales came to a halt, finally reflecting the general slowdown in vehicle and retail sales. Instalment and leasing finance slowed further, easing to 11,6% year-on-year from 13,8% year on year."

It is also important to note that growth in mortgages advances, which makes up 50% of asset-backed credit, slowed to 23,1% year on year from 24,5% year on year.

Loos said the residential property slowdown remains largely responsible for the growth slowdown in the total book. "If one takes a look at the recently released SARB Quarterly Bulletin figures for new loans granted, we see that they had reached a year-on-year rate of decline of -11,9% by the final quarter of 2007," added Loos.


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