Johannesburg - South Africa's May monetary
aggregates have certainly surprised by dipping well below expectations and
according to one commentator, highlight the risks and challenges of
stagflation.
"The Monetary Policy Committee (MPC) will have to manoeuvre carefully in
this proverbial policy minefield in order to ensure the best long-run outcome,"
says chief economist at Vunani Securities, Johan Rossouw.
"Persistently high inflation poses a classical stagflation challenge to
policy makers," he says.
Rossouw says credit and money growth in South Africa could continue slowing
for the remainder of the year to rates of increase of around 0%.
This comes as inflation in SA remains stubbornly high at 8%, while growth
is -6.4% quarter-on-quarter seasonally adjusted and annualised. The repo was
last left unchanged at 7.5% by the MPC.
And today it was announced credit extension to the private sector (PSCE)
grew at a rate of just 5.70% year-on-year (y/y) in May from a revised 8.47%
(8.73%) in April. The rate of growth of South Africa's broad M3 money supply
measure rose by 7.31% in the year to end-May from a revised 8.49% (8.83%) in
the year to end-April.
The rate of growth in credit extension was expected to have increased at
7.9% year-on-year (y/y), according to I-Net Bridge's Econometer. South Africa's
broad M3 money supply aggregate growth rate, meanwhile, was expected to have
increased at 8.1% y/y. Forecasts among the economists surveyed for PSCE ranged
from 7.4% to 8.9%, while the range of forecasts for M3 was from 7.3% to 8.6% at
the top of the range.
PSCE was at 19.7% a year ago, while M3 was at 20.9%, both providing a
statistical high base.
Absa Capital said in a note that credit extension has actually fallen by
about R21bn between December 2008 and May 2009 (on the back of a
decline in corporate credit) compared to the R139bn rise recorded
over the same period in 2008.
"Though today's data point to still weak domestic demand conditions, it is
unlikely to have a bearing on the August 13 MPC deliberations [there is no MPC
meeting scheduled for July] with the SARB's focus now firmly back on inflation
as compared to its focus on weak economic activity during the first half of the
year. In our view, we have reached the bottom of the interest rate cutting
cycle, with the policy rate expected to remain at 7.5% for the remainder of the
2009," they add.
- I-Net Bridge