Nedbank: Money supply and credit

30 Aug.

Nedbank Economic Commentary: Money supply and credit – July 2011.

Private sector credit growth stagnates.

• Private sector credit extension picked up further in July, increasing to 5,7 % y-o-y from 5,3 % y-o-y in June. This was well ahead of market expectations.
• A rise in credit extended to companies, which rose from 3,8 % to 5,8 %, and a strong increase in the investments category, were behind the gain. In contrast, credit to households eased off slightly moderating to 6,6 % from 7,1 %, due to a slowdown in mortgages.
• Annual growth in money supply eased further to 5,6 % from 6,1 % in June.
• Credit growth is still expected to rise modestly in the coming months off a low base, supported by still low interest rates and relatively firm income growth. However, high existing debt levels, tighter lending standards, rising cost pressures from higher food prices and concerns about a possible global recession will contain the pace of the recovery compared with the previous credit cycle.
• This month’s data will not be a source of concern for the Reserve Bank, as there is no evidence of strong credit-led consumer demand. If anything the figure still underscores the fragility of the upswing as the categories which improved tend to be more volatile. The Bank will continue to watch for signs that the global economy is slipping into recession and how the domestic economy is fairing. With growth under threat, the MPC will probably opt to keep rates on hold until there is clear evidence of improved growth momentum.. Should the global economy slip back into recession a cut in rates may be on the cards. However, for now, we maintain our view of unchanged rates until May 2012.

Comment

Private sector credit extension picked up further in July, increasing to 5,7% y-o-y from 5,3% yo- y in June. This was well ahead of market expectations. An increase in credit extended to companies, which rose from 3,8% to 5,8% and a jump in the investments category, was behind the gain. In contrast, credit to households eased off slightly slowing to 6,6% from 7,1%, due to a slowdown in mortgages.

Annual growth in money supply eased further to 5,6% from 6,1% in June, but increased by 1,7% over the month. The increase was due to a R25,7 billion and R30,1 billion in net claims on the government sector and claims on the private sector, respectively. …

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