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Mixed money supply signals
THE ECONOMY
AMID the market turmoil, very few analysts paid attention to the release of money supply figures, which are an important pointer to the next interest rate movement. The figures, released by the Reserve Bank, showed a mixed picture - the year-on-year growth in the broadly defined M3 money supply was 16.32% in September, well ahead of the 13.94% reported in August, while credit extension, a main contributor to the growth in the money stock, fell to 14.25% from 14.60% in August. The growth in the M3 money supply was worse than expected, with most economists forecasting a 14.5% growth rate. However, Dawie Roodt, economist at Equisec, told Reuters: "Money supply was higher because of technical factors and stronger-than-expected credit growth. "The 'other loans and advances' element rose R4.2- billion and this is not a good number. But it could reflect corporate, rather than domestic borrowing - firms engaging in on-shore funding to redeem offshore debts - and I don't think it will be inflationary." Needless to say, the 16.32% rate is well ahead of the upper guideline set by the Reserve Bank for monetary policy purposes and is likely to again raise debate over the most suitable policy instrument at the disposal of the Bank.
The Bank can also take some heart from the trend in credit extension to the private sector. The nominal year-on-year decline in September is supported by a more fundamental quarterly assessment, which shows credit extension, seasonally adjusted, also at just over 5% (see graph). The underlying fall in credit extension was one of the main reasons the Bank last week decided to cut interest rates. The monetary authorities had obviously concluded that while still relatively high, only a limited part of credit demand found its way into higher prices. Most of the borrowing is currently being used to service debt.
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