SA credit growth showing signs of slowing

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By Kevin Lings

In May 2008, SA growth in broad money supply (M3) was recorded at 20.9% y/y, down fractionally from 21.1% y/y in April. The market was expecting growth of 20.4% y/y. In May, claims on the private sector rose by a still relatively robust R15.9bn. Overall, while M3 growth remains high, there is some evidence to suggest a slowdown in the months ahead.

The growth in private sector credit rose marginally to 19.7% y/y in May, up from 19.6% y/y in April. Markets were expecting a modest slowdown to 19.4% y/y. This is the second consecutive month that the annual rate of growth in private sector has been below 20% y/y since December 2005, albeit only fractionally below 20%. In particular, there is evidence of a slowdown in mortgage credit, now growing at 20.6% y/y, well down from a peak of 30.9% y/y in October 2006 (see chart attached). Similarly, credit card growth is also easing (see chart attached).

In real terms (adjusting for inflation), the growth in private sector credit (excluding investments) has obviously slowed noticeably, mostly due to the rise in inflation. Real credit is now growing at only 8.4% y/y, well down from the recent peak of 20.8% y/y in February 2007. During that time inflation rose from 5.7% to 11.7% – 6 percentage points.

On a trend basis, the annual growth in credit demand is clearly showing signs of slowing, albeit very slowly. There is evidence that the previous increases in interest rates, the introduction of the NCA, and the slowdown in disposable income growth are having a moderating impact on overall demand for credit as well as consumer and housing activity. This is expected to continue throughout the remainder of this year and well into 2009.

Unfortunately, from an interest rate perspective, I suspect the Reserve Bank would want to see a much more convincing slowdown in credit demand. Overall these numbers, together with the disappointing inflation data released last week, are generally more supportive of a further rate hike in August.




Source: Kevin Lings, Stanlib, June 30, 2008.


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