Credit growth hopes to rebound
GROWTH in credit demand by the private sector accelerated 6.7% year on year, from 6.5%, and economists said this was due to a massive increase in the investment category, Reserve Bank data showed yesterday.
The consensus among economists was for 6.1%.
Money supply (M3) growth eased to 6.4% in December, slightly lower than the market’s forecast of 6.5% from 6.6% in November.
Over the month, M3 grew by 0.2% due to a strong rise in net claims on the private sector and in net other assets and liabilities.
Johannes Khosa, Nedbank economist, said: “Growth in private sector credit extension accelerated more than expected.
“This was due to a massive increase in the investments category rather than any pickup in activity-related to credit extension.
“The latest figures, together with other recent indicators suggest that economic activity remained relatively firm in the fourth quarter of 2017.”
However, Khosa said much still needed to happen politically before recent positive news translates into sustained rand strength and therefore lower inflation and interest rates.
He said during the month, the 0.2% rise was driven by a strong increase in net claims on the private sector and net other assets and liabilities, which rose by R38.5bn and R56.5bn respectively.
“For now, our forecast is for rates to remain unchanged throughout 2018 before increasing by 25 basis points each in September 2019 and January 2020,” he said.
In addition, Khosa said going forward, credit demand was likely to improve gradually in 2018 as economic growth picks up and confidence improves following the change of leadership in the ruling party steady interest rates and softer inflation support household credit affordability.
Some analysts said this encouraging signs in credit growth and positive prospects for GDP growth came at the right time as banks had been heavily impacted by weak credit growth on the back of lower confidence and weak economic growth.
This is because their primary business is to provide loans to customers in return for interest payments.
As economic environment improves and customers are more willing to spend, demand for credit grows.
Both unsecured lending to households and business increased slightly on a month on month basis and are likely to see business investing back as the domestic economy is poised for a positive growth this year.
UNEXPECTED GROWTH: Nedbank economist Johannes Khosa.