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January credit growth slows

Feb 28 2013 08:28 Reuters

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Johannesburg - Growth in credit demand by South Africa's private sector slowed to 8.64% year-on-year in January, compared with a 10.09% rise in December, central bank data showed on Thursday.

Expansion in the broadly defined M3 measure of money supply accelerated to 6.75% year-on-year in January after rising by 5.17% the previous month, the South African Reserve Bank said.

Jana Le Roux, economist at ETM analytics said: "It has been noted over recent months that household credit growth has lost some upside momentum. However corporate credit growth has been rather robust, buoying the headline PSCE number. Therefore, the downside surprise may have been a function of a sharp decline in corporate credit growth.

"Following a period in which a divergence was noted between M3 and PSCE, presumably on the back of a slowdown in public sector borrowing (including local govt. and parastatals) which weighed on M3, the rebound in M3 to resume the relationship does not come as much of a surprise. A further convergence in the two series is likely to materialise in coming months.

"Bottom Line: aggregate monetary environment remains accommodative which suggest that risks to inflation over the medium term remains to the upside. The South African Reserve Bank is likely to keep its accommodative policy measures intact as the domestic economy remains highly reliant on consumption to support overall growth."

Elna Moolman, analyst at Renaissance Capital said: "The growth in credit extension fell short of our expectations with a moderation to 8.6% year-on-year in January. This seems to be mostly owing to the corporate sector as credit extended to households maintained its December growth rate at about 9.9%. The ongoing weakness in the mortgage market is striking - mortgage advances were virtually unchanged from December."

The rand was at R8.8435 against the dollar at 06:32 GMT from R8.8450 before the data was released at 06:00 GMT. The yield on the 2015 bond was slightly higher at 5.280%, as was that for the 2026 paper, which was yielding 7.300%.

Credit demand growth has been in positive territory since May 2010, although its recovery has been somewhat constrained by high unemployment and an uncertain outlook for companies.

The ratio of household debt to disposable income remains extremely high at 76% while unemployment remains around 25%.

The Reserve Bank's benchmark repo rate is at a four decade low of 5.0%. The central bank left it unchanged in January, citing concerns about rising food prices and a depreciating rand exchange rate in a period of slowing growth.

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