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Articles: Credit growth shows no sign of letting up

Posted by admin on Friday, March 31, 2006 - 07:52 AM

DEMAND for credit surprised on the upside last month, rising as consumers showed little sign of slowing their appetite for debt.
Ayanda Shezi

Economists said yesterday that the latest credit figures suggested debt levels continued to rise in the first quarter of this year, driven by favourable interest rates and benign inflation levels, having risen to a record high in the fourth quarter of last year. Data released yesterday by the Reserve Bank shows that private-sector credit extension increased by R23,1bn (2%) last month, to be up 21,5% year on year, from 20,6% in January. The broadest measure of money supply, M3, increased R47,5bn or 4,3% month on month, and was up 21,1% (19,7%) year on year. In the three months to February, M3 accelerated to 21,2% quarter on quarter. “The monetary picture reflected by the February numbers probably vindicates the cautious stance by Reserve Bank governor Tito Mboweni during his feedback session to Parliament (on Wednesday),” said Vector Securities chief economist Johan Rossouw. “We concur with his stance that the current rate of monetary expansion, coupled with an economy already growing above trend and clearly running into capacity constraints in some sectors, calls for caution on interest rates,” said Rossouw. “The bias is on the upside; the bias is on the tightening side; it is not on the loosening side,” said Mboweni, speaking to Parliament’s finance committee about the outlook for rates. JPMorgan economist Marisa Fassler said: “The strength of domestic demand should continue to be an important driver of monetary policy this year, warranting a degree of caution on the part of the (Bank’s) MPC (monetary policy committee).” The ratio of household debt to disposable income reached a new high of 65,5% in the fourth quarter of last year, from 63,5% in the third quarter. Underlying credit extension (excluding investments and bills discounted) increased 22,7% year on year. After a soft start to the year, mortgage advances increased strongly by R12,8bn or 2,4% in the month. “The residential property market continues to be buoyant even though growth in house prices has softened substantially from last year’s peak,” said Standard Bank economist Shireen Darmalingam. Instalment sales credit rose R2,9bn in the month, as vehicles have become relatively more affordable. “Imported vehicles are flooding the market, and have helped contain local prices over the past year,” said Darmalingam. This was likely to continue through the second half of the year, supporting a surge in leasing finance, she said. Darmalingam said the low interest-rate environment had increased opportunities to the previously unbanked population, now more able to take on credit-based debt. Other loans and advances, which mainly reflect corporate overdrafts and credit card debt, were up R9,7bn, pushing growth up to 14,9%, from 13,6% in January. Meanwhile, a strong rand helped keep prices at the factory gate stable last month, neutralising the negative effect of higher imported prices on the local economy. The mild producer price index (PPI) figure boded well for the inflation outlook, and was likely to see interest rates remain stable in the remainder of this year, economists said. Data released yesterday by Statistics SA showed that PPI remained unchanged at 5,5% last month. Imported prices rose 6,9% (6,4%) year on year, while prices for locally produced goods rose 5,5% (5,2%).

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