Johannesburg - South Africa's private sector credit demand growth braked to a 3-½ year low of 16.42% year-on-year in September, below forecasts, adding to signs higher interest rates are cutting spending.
Statistics South Africa said on Wednesday credit growth slowed from 18.64 percent in August to its lowest level since early 2005.
During the same month, growth in the broadly defined M3 measure of money supply eased to 15.23% year-on-year - a more than 3 year low - compared to 15.42% previously.
A Reuters poll had forecast private sector credit growth would slow to 17.4% in September, while the annual growth in M3 was seen at 15.21%.
Analysts said the slowdown may ease some of the concerns about the impact on inflation from a sharply weaker currency.
"It indicates that the trend ... is continuing to come down, which is a good thing, especially given the sharp increase (weakness) in the rand, which caused some fears that we could see extra interest rate hike," Efficient Group economist Fanie Joubert said.
"So, I think at this stage this continuing cooling in credit figures is countering that argument."
An economist interviewed by I-Net Bridge expects credit growth to slow to well below 10% in early 2009. Stanlib chief economist Kevin Lings said, "As discussed over the past few months, on a trend basis, the annual growth in credit demand is showing very clear signs of slowing.
"There is evidence that the prior increases in interest rates, the introduction of the National Credit Act, a slump in disposable income growth, a slowdown in housing price growth and worsening consumer confidence are all 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 2009. In fact, I expect household credit to slow to well below 10% y/y in the early part of 2009. This is partly due to base effects, but also reflects the sluggish general economic conditions and the fact that much of the current growth in household credit is reflecting a draw-down of existing facilities rather than the granting of new credit.
"Unfortunately, there is also growing evidence that consumer debt defaults are rising. Most banks and retailers have reported a noticeable increase in bad debts during the past year, albeit off a very low base. In addition, insolvencies are showing a noticeable increase. These trends are likely to intensify in the months ahead and become far more noticeable in 2009."
The rand is about 25% weaker against the dollar this month after slipping to a near-7-year low of 11.88 on global risk aversion and worries about a wide current account deficit.
By 08:26, it traded at 10.33 to the greenback, marginally weaker after the data was released. The yield on the benchmark 2015 government bond dropped to 9.235% from 9.25%.
South Africa's central bank lifted its repo rate by 5 percentage points to 12% between June 2006 and June 2008 but left it steady at the August and October policy meetings on signs consumer spending was easing.
Retail sales are falling, as are new vehicle sales and house prices as household budgets come under strain from the higher borrowing costs.
The declining trend in lending would likely add to the argument that the next move in interest rates will be down.
- Reuters