Credit extension to the private sector (PSCE) grew at a rate of 18.64 percent year-on-year in August from 19.81 percent in July, the South African Reserve Bank (SARB) said on Tuesday.

The rate of growth of South Africa's broad M3 money supply measure rose by just 15.42 percent in the year to end-August from 18.51 percent in the year to end-July.

South Africa's total domestic credit extension had a growth rate of 20.63 percent y/y in August from 23.11 percent in July.

Forecasts among the 10 economists surveyed for PSCE ranged from 18.5 percent to 19.6 percent, while the range of forecasts for M3 was from 16.4 percent to 18.0 percent at the top of the range.

PSCE was at a whopping 23.2 percent a year ago, while M3 was at 25.8 percent, providing a statistical high base.

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.

This is what leading economists had to say about the data:

Fanie Joubert, Efficient Group:

"That was quite a huge drop in M3. Net other assets and liabilities has been dropping for some time, while you can also see a drop in the investments category. I think banks are probably extracting some of their money out of the market and shifting it to safer investments - I am not sure where it is flowing. In general, the nominal rise in claims on the private sector itself is 10.6 percent versus 22.3 percent in July. Usually that item is the largest driver of money supply. Given the fact inflation has probably peaked and now with lower credit extension, I don't think we will have another rate rise."

Shireen Darmalingam, Standard Bank:

"The easing in growth in money supply and credit extension to multi-year lows confirms that the tighter economic landscape is finally infiltrating monetary aggregates. Indeed, the pace of increases in most credit components is running out of steam, despite still strong demand from corporates. Furthermore, these data serve to confirm that inflationary pressures may also abate on the back of weakening excess spending - as growth in household disposable income is still overshadowed by advances in household expenditure. Nonetheless, inroads into households' appetite for credit demand is encouraging and augments our expectations for no further tightening in monetary policy."

Kevin Lings, Stanlib:

"On a trend basis, the annual growth in credit demand is showing very clear signs of slowing. There is evidence that the prior increases in interest rates, the introduction of the National Credit Act, and slump in disposable income growth are all having a moderating impact on overall demand for credit as well as consumer and housing activity. This is expected to continue throughout the remainder of this year and well into 2009. In fact, I expect household credit to slow to well below 10 percent y/y in the early part of 2009. This is partly due to base effects, but also reflects the sluggish economy and the fact that much of the current growth in household credit is reflecting a draw-down of existing facilities rather than the granting of new credit. Unfortunately, there is also growing evidence that consumer debt defaults are rising sharply. Most banks and retailers have reported a noticeably increase in bad debts in the past year. In addition insolvencies are showing a noticeably increase, albeit off a very low base. These trend are likely to intensify in the months ahead and become far more noticeable in 2009."

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