A concerning undercurrent in the South African economy is the potential decline in people in good standing with the credit bureau.

According to economist from Standard Bank Shireen Darmalingam, this may partly explain why there has been an unexpected increase in credit extension in March.

The central bank has been concerned about the increase in reckless spending and she says while full figures will only be available in the middle of May, she believes there has been a decline in people in good standing with the credit bureau.

According to the latest credit figures released on Wednesday, the category that includes credit cards went from 23.9 percent in February to a whopping 29.5 percent year-on-year – indicating more people were using this type of credit.

Darmalingam feels people are potentially using this category to finance other forms of debt. These other expenditure items may include the need for things like generators in the face of the power crisis, she explains.

"As debt increases they are maybe using other credit cards. I doubt people just have one credit card and they are possibly using them to offset other debt," she says.

Darmalingam notes, however, that consumer spending is slowing in general when categories like vehicle sales are taken into account, but she remains concerned that this "other" loans and advances category is on the rise.

She does point out that while the month/month rise registered only 1.0 percent to households, the corporate category kicked up by 4.6 percent.

"Concerned about reckless spending"

"I still think they will probably hike in June – they have been concerned about reckless spending," says Darmalingam, adding that this is notwithstanding the fact that higher interest rates are already hitting consumers.

According to data on Wednesday morning, the rate of growth of South Africa’s broad M3 money supply measure rose by 21.00 percent in the year to end-March from a revised 20.86 percent (21.07 percent) in the year to end-February.

Credit extension to the private sector (PSCE) grew at a rate of 22.62 percent year-on-year from 20.79 percent in February.

The rate of growth in PSCE was expected to have increased at 20.5 percent year-on-year in March, an I-Net Bridge poll found, meaning this data surprised the market and in fact brought about immediate weakness in the bond market.

M3 money supply aggregate growth, meanwhile, was expected to have increased in March at 20.7 percent year-on-year.

Notably, overall credit was at 22.3 percent in June 2006 when interest rates were first hiked by 50-basis-points, and the current number will be an important factor being monitored by the central bank as it is very similar to that historic figure which captured their attention.

South Africa's central bank is scheduled to meet again on 12 June to decide on interest rates, but there has been talk that an inter-MPC (Monetary Policy Committee) meeting may be called before then. It is possible the latest credit data tilts opinion in that direction.

The MPC paused their tightening cycle on 31 January after raising in December, but inflation expectations then worsened considerably and prompted another hike in rates on 10 April.

I-Net Bridge