ECONOMY
Credit extension will worry SARB
Posted Mon, 03 Jul 2006
Despite credit extension to the private sector easing slightly in May, demand remains strong enough to be of concern for the SA Reserve Bank, an economist warned on Friday.
Private Sector Credit Extension (PSCE) grew at a slightly below forecast 22.7 percent year-on-year in May, down from April's 23.17 percent year-on-year growth, Reserve Bank said, also on Friday.
M3 money supply grew by 24.2 percent in the year to May, up from 23.02 percent in April. Historically the SARB targeted a level of ten percent year-on-year growth, with M3 remaining well above this target.
According to Hugo Pienaar, economist at NKC Independent Economists, with PSCE falling for the second straight month on an annual basis, the "trend is thus in the right direction".
However, with mortgage advances and leasing financing growing strongly in May — the former contributed some 40 percent to the total PSCE — the credit demand combined with pressure building at producer inflation level
will worry the central bank, who will be concerned that this will pass through to the consumer, Pienaar said.
Moreover, with Brent crude "fast approaching record highs", Pienaar remained concerned of "the trend for oil prices".
"It has to be remembered that the SARB said in June it based its more hawkish CPIX forecast mainly on negative assumptions regarding the oil price. At this stage these fears seem to have been warranted," he said.
With the rand gaining strength in early trade on Friday — the unit was bid at 7.11 to the dollar from 7.34 on Thursday — it may prevent an interim interest rate increase, although it "may not be sufficient to prevent another 50 basis points hike in August," he said.
| 
