Johannesburg - The rate of private sector credit extension moderated to 6.8 percent year-on-year in July, down from 7.2 percent year-on-year a month previously, official data showed on Wednesday.
The slowdown, explains Investec in a note, was because of slower growth in both household and corporate credit extension.
Investec explains, last month, household credit growth eased to 1.4 percent year-on-year from 2.1 percent year-on-year in June.
The disaggregation of the household credit data showed an ongoing contraction in the unsecured credit category, at 4 percent year-on-year in July versus a prior 3.1 percent year-on-year, Investec says.
In July, growth in household mortgage advances remained relatively steady at 4.2 percent year-on-year versus 4.1 percent year-on-year in the prior month, Investec notes.
“The muted underlying household credit dynamics are a function of supply and demand side factors.
“On the supply side, new regulations relating to affordability assessments and limitations on fees and interest rates are likely weighing on the amount of credit granted. In addition, credit criteria applied to households remain relatively tight.”
Investec adds, on the demand side, high levels of existing consumer indebtedness, depressed consumer confidence and the higher interest rates are likely dampening the appetite to take on more debt for consumption purposes.
“There is therefore little to suggest a meaningful turnaround in household credit growth, which will remain a restraining factor on household consumption expenditure. This suggests that generalised demand-led inflationary pressures should remain relatively subdued.”
Despite this, Investec notes the South African Reserve Bank has retained its relatively hawkish bias in recent communication.and there is still a risk of a further interest rate increase this year.
Inflation is currently at 6 percent, the top of the target band, while the prime lending rate is 10.25 percent.
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