Slowdown in money and credit creation still slowing

The Numbers*

M3 (July) 5.8% vs 6.1% in June
Credit extension: Private sector (July) 3.4% vs 4% in June Households 4% vs 4.6% in June
Companies 2.8% vs 3.4% in June
Installment sales 1.6% vs 2.9% in June
Leasing -21.6% vs -21.2% in June
Installments and leasing -3.2 vs -2.2% in June
Mortgages 6.4% vs 8.2% in June

*(All numbers are year over year growth)

The rate at which new money is created continued to slow in July. The main reason for this phenomenon can be attributed to the slower pace of credit extension to the private sector. Credit take-up by both the household and company sectors continued their downward trend. Indeed, the pace of credit extended to households is now at its lowest level since April 2004, whilst credit growth to companies is barely in positive territory and at its lowest level since December 2004.

The pace of credit extension is negatively affected by a number of factors. For the household sector this include the stringent requirements imposed by the National Credit Act, loss of income due to job losses and slower pace of commission driven contracts, the tighter lending criteria imposed by banks and lower disposable income as a result of inflation.

Company credit uptake was hindered by the economic recession and slowdown in new investments.

Both the money supply and credit extension numbers point to a still weakening demand. However, the weakening demand also points to less pressure on prices to increase.

This might prompt the Reserve Bank to consider another reduction in the repo rate. However, whether this will occur later this month is uncertain. The MPC might opt to wait and act later.