Rate cut nearly in the bag
April 30, 2009
Johannesburg - Growth in demand for credit by South Africa's private sector slowed to its lowest level in four-and-a-half years in March, and a sharp slowdown in producer inflation further hardened the argument for a steep rate cut later in the day.
The central bank has cut the repo rate by 250 basis points to 9.5 percent since December, after rates increased by 5 percentage points between June 2006 and June 2008 as the bank sought to curb inflationary, credit-driven consumer demand.
Consumer inflation has however been on a downward trajectory since peaking in August last year, while a combination of tighter lending rules and relatively high levels of debt have resulted in more cautious lending by banks.
On Thursday data from the central bank data showed private sector credit growth slowed to 8.51 percent -- slightly above the 8.45 percent recorded in September 2004 -- compared with 11.05 percent last month.
Growth in the broadly-defined M3 measure of money supply also braked to 10.58 percent from 13.17 percent previously.
A Reuters poll forecast private sector credit growth would come in at 9.1 percent in March, while the annual growth in M3 -- which often points to inflationary pressures in the economy -- was seen at 11.5 percent.
"It (credit number) came in way below consensus and I think it just adds to other economic indicators that have been coming out of the real side of the economy, showing that we have got an ailing economy and underlying weakness," said Ian Marsberg, macro strategist at Absa Capital.
"It adds further to the argument for a rate cut this afternoon, and we're looking for 100 basis points."
100 bps cut seen
The majority of economists surveyed by Reuters expect the central bank to cut the repo rate by a full percentage point to 8.5 percent when it concludes a two-day policy meeting on Thursday, on an improved inflation outlook and also to ease pressure on the ailing economy.
That argument was further buoyed by figures from Statistics South Africa showing producer price inflation slowed sharply to 5.3 percent year-on-year in March from 7.3 percent in February.
The PPI number, which represents domestic output, was below forecasts of 5.7 percent and offset some of the market disappointment after consumer inflation came in above expectations at 8.5 percent in the year to March.
Consumer inflation has generally been on a downward trend since it peaked in August last year, but remains outside the South Africa Reserve Bank's (SARB) target band of between 3 and 6 percent.
"PPI demonstrates enough of a disinflation trend, for the consumer inflation data to follow in time," said Razia Khan, regional head of research for Africa at Standard Chartered in London.
"The SARB will be able to cut interest rates by 100 bps this afternoon, with more aggressive easing to follow, helped along also by a rand that is benefiting strongly from the revival in risk appetite." - Reuters
|
|
