Mariam Isa

Reuters

DEMAND for credit by SA’s private sector slowed in November, reinforcing the growing view that domestic interest rates will stay on hold, or possibly even fall, this year.

Domestic demand has been the main driver of faster growth in Africa’s biggest economy over the past year, fuelling a consumer spending spree that has ignited demand for credit and fanned fears the Reserve Bank may raise rates to stem the trend.

But data from the Bank last week showed that annual growth in credit demand from the private sector rose 18,79% in November, in line with expectations and below a downwardly revised 19,25% in October.

Growth in the broad M3 measure of money supply, which often points to inflation pressures, quickened to 16,44% from a revised 15,92% in October — but also fell short of forecasts for a 17,3% increase.

"Moderation in the figures, together with downward revisions in the previous month, cast doubt on the possibility of a rate hike any time soon," said ETM markets analyst Michael Keenan.

"It cements our view that rates will be left on hold in 2006 with an outside chance of a cut if the rand and oil price play ball."

Surging global oil prices and a short-lived retreat in the rand have fuelled concern that interest rates would have to rise to quash mounting price pressures but both trends have reversed, dramatically improving the inflation outlook.

With South African authorities keen to boost economic growth to reduce steep unemployment, many analysts believe the central bank will seize the opportunity to cut interest rates again — provided its 3%-6% inflation target is not threatened.

"Credit and money supply growth are the only obstacles in the way of lower interest rates.

"These figures make the chance of a rate cut early next year — in February or April — greatly enhanced," said Absa economist Chris Hart.

"They show we are in a downtrend for credit and money supply," said Hart.

"Growth in consumer demand is still strong but the momentum is slowing."

The Bank holds its next scheduled monetary policy committee meeting on February 1-2, followed by one in April.

Most analysts believe the Bank will keep interest rates on hold through this year, but a growing minority see scope for looser monetary policy, given a recent rally in the rand which is helping keep a lid on price pressures.