Demand for credit by businesses and households in South Africa is expected to ramp up in the months ahead as the South African Reserve Bank (SARB) has begun its interest rates easing cycle on the back of slowing inflation.
Private sector credit extension (PSCE) data from the SARB yesterday showed that private sector credit slowed to 4.6% year-on-year in September, easing from a more than one-year high of 4.9% increase in August.
However, the figure was stronger than the market's expectations of 4.0% growth, marking the 39th consecutive month of growth in private credit albeit at a softer pace.
Credit uptake by corporates, which constitutes over half of total PSCE rose by 5.7% when compared to the same period last year, just moderately below August’s elevated reading of 6.4%.
Household credit growth was steady at 3.3%, and the subcategories showed mixed performances.
Instalment sales and leasing finance was up 7.4% from 7.1%, while overdrafts and credit card usage also accelerated slightly.
Growth in home loans was almost unchanged at 2.4%, while personal loans contracted for the sixth consecutive month, down by 1%.
Last month, the SARB lowered its benchmark repurchase rate for the first time in 3-and-a-half years, from 8.25% to 8.00%, as the consumer price inflation fell to 4.4%, below the midpoint of its 3-6% target range.
However, the SARB is expected to cut rates even further next month, perhaps by an even more aggressive 50 basis points, as inflation has dipped further to 3.8% this month.
Nedbank economist Johannes Khosa said they expected credit demand to accelerate slightly in the months ahead.
Khosa said lower inflation will boost real disposable income, debt service costs will ease as interest rates fall, and the Two-Pot [retirement] system will give households access to a portion of their retirement funds.
“These developments will gradually reduce the strain on household finances, boosting consumer confidence and spending. The outlook for corporate credit is uncertain,” Khosa said.
“Company loan growth will likely remain relatively volatile and subdued in the short term as fixed investment is only expected to turn the corner in 2025 when the domestic economy gains more upward traction, global growth picks up some pace, and the general operating environment improves further. We expect credit growth to end the year at just below 5% before accelerating to 6% by the end of 2025.”
Investec economist Lara Hodes noted that the corporate investment category increased by a further 4.5% month-on-month and by 6.4% year-on-year.
Hodes said business confidence edged higher in the third quarter as the more favourable electricity supply situation coupled with the increase in political certainty has buoyed sentiment.
“Going forward however, constrained consumers, especially the heavily indebted will benefit from further interest rate cuts, with the SARB’s monetary easing cycle having commenced in September. We expect a further 25 basis points cut in the repo rate in November,” Hodes said.
Meanwhile, expansion in the broadly defined M3 measure of money supply accelerated to 7.25% from a 6.11% rise in the preceding month.
BUSINESS REPORT