Credit growth disappoints in September

Growth in private sector credit extension eased to 5.47% year on year in September from 6.06% y/y in August according to data released by the SA Reserve Bank on Monday.

This was disappointing news as the rate of growth in private sector credit extension (PSCE) was expected to have registered y/y growth of 5.7% in September, according to a survey by I-Net Bridge. Forecasts among seven leading economists ranged from 5.2% to 6.9% growth in PSCE.

Credit to households slowed further, moderating to 5.0% from 5.2%, while corporate credit demand eased to 5.8% y/y from 7.0% y/y, due to a moderation in the other loans and advances category. Over the month, corporate credit demand stagnated.

The rate of growth of SA's broad M3 money supply measure rose by 6.80% y/y in September from 6.22% y/y in August.

Broad money supply rose by R13.5 billion, due to an increase in net claims on the private sector as well as an increase in net other assets, which increased by R5.6 billion.

According to Nedbank economists, consumer credit would remain modest over the coming months.

Over the past few months, corporate credit demand had gained some momentum, albeit off a low base. In September, corporate credit demand stagnated, which might be due partly to the deterioration in business confidence that had been experienced over the past quarter, Nedbank said.

However, due to the low base as well as evidence that corporates continued to invest in capital equipment in order to modernise existing facilities, it seemed likely that this category would continue to expand at a modest pace over the coming months.   

"Slower income growth, weak confidence and high debt levels will hamper demand, while banks will be wary of extending credit into areas which face increased regulatory pressures."

Nedbank added that September's figures gave further evidence that domestic demand, particularly from households, was far from robust and provided little threat to the medium-term inflation outlook.

"We will continue to watch for signs that the global economy is slipping into recession and how the domestic economy is fairing.

"With growth under threat, but inflation rising, the Monetary Policy Committee (MPC) of the SARB will probably opt to keep rates on hold until there is clear evidence of improved growth momentum.

"In contrast, should the global economy slip back into recession a cut in rates is likely. For now, we maintain our view of unchanged rates until mid-2012."

Standard Bank economists said that the data had not altered their interest rate view.

"We maintain that the SARB will keep the repo rate on hold this year. We expect the first hike only in Q3:12. However, we see an increased risk for a rate cut if the global and domestic economic outlook deteriorates further."

According to Barclays Capital, lacklustre household credit growth momentum in September indicated that the SARB's MPC would not be concerned about significant demand-driven inflationary pressures in the economy at this stage (core inflation remained well contained at 3.8% y/y for instance).

"Therefore, we believe that a still relatively weak real economy dynamic (both globally and locally) is likely to continue to dominate policy rate decisions going forward. We maintain our 'low for longer' policy rate view and look for the interest rate normalisation cycle to commence only in Q4 2012."