Limited room to cut interest rates slows demand for credit

12 September 2013 - Which Way To Pay

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Private sector credit growth slowed to 7.41% limiting room to cut interest rates

Last week the central bank data showed a decrease is credit demand from South Africa's private sector to 7.41% -the slowest pace since April 2012. Expansion in the broadly defined M3 measure of money supply also halted to 7.36% from 9.18%.

Thought that credit growth would slow to 8.7%

Economists surveyed by Reuters had thought the credit growth would slow to 8.7% while money supply growth was seen at 8.4%.

No room to cut interest rates to spur economic growth

The Reserve Bank has kept its benchmarking lending rate at 5% for more than a year as a weaker rand and rising fuel costs boost inflation. This has limited the room for policy makers to cut interest rates and help economic growth.

"The weaker credit growth strengthens the argument to stimulate the economy, but the number-one factor the Reserve Bank will have to look at is still inflation," Christie Viljoen, an economist at NKC Independent Economists in Paarl, said by phone. "This will not change anything for monetary policy in the short term." For the first time in 15 months, inflation at 6.3 percent in July surpassed the Reserve Bank's 3 percent to 6 percent target range. The rand gained 0.2 percent to 10.3426 per dollar at 8.46 a.m. in Johannesburg, trimming the decline this year to 18 percent.

"Growth in credit extension is likely to remain relatively subdued during the second half of the year, as consumer and business confidence is still fragile, the job market remains weak and high existing personal debt and tight lending standards will make consumers cautious of applying for more credit," Nedbank Group Ltd. (NED) said in an e-mailed note after the data were released.

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