Credit demand growth quickens

Johannesburg - Annual growth in credit demand by South Africa's private sector quickened in September, but not sufficiently to outweigh inflation numbers earlier in the week that backed the case for another interest rate cut.

Credit demand growth has been in positive territory since May, but the recovery is expected to remain fairly subdued as banks remain cautious about lending to highly indebted consumers.

Expansion in private sector credit demand was at 4.42% year-on-year in September, compared with an upwardly revised 3.0% in August, Reserve Bank data showed on Friday.

The bank said growth in the broadly defined M3 measure of money supply accelerated to 5.08% year-on-year compared with 4.38% in August.

A Reuters poll last week showed expectations of private sector credit demand expansion at 4.2% year-on-year in September. Money supply growth was seen at 5.6%.

"One of the biggest positives about the rising trend is that household credit extension is still ahead of target, showing that consumers' balance sheets are recovering very nicely this year," said Gina Schoeman, a senior economist at Absa Capital, adding however that this was not "aggressive growth".  

"I don't think it has as big a bearing (on the interest rate outlook) as the downside print in CPI this week and the fact that CPI and PPI actually came in below consensus and the fact that CPI has printed below consensus for 7 months in a row".

The latest credit number still leaves the door open for the Reserve Bank to cut rates either at its last policy meeting for the year on November 17 to November 18, or in January to help boost growth as the economy struggles to recover from last year's recession.

The bank trimmed the repo rate to 6% at its previous policy meeting in September, bringing cumulative rate reductions since December 2008 to 600 basis points.