Money supply growth up

JOHANNESBURG – South Africa’s private sector credit demand and broad money supply growth accelerated sharply in July, central bank data showed this week, backing the view that interest rates will not fall again this year.

Speculation that interest rates could fall further at the central bank’s next policy meeting in October had been quashed by the credit figures and stronger than expected inflation data for July last week, analysts said. Banking sector reserves leaped US$3,2 billion in the month, a surprising development which analysts said may have inflated money supply and could point to inflows from Barclays’ purchase of a majority stake in the country’s biggest retail bank, Absa.The two sets of central bank data may help to resolve the mystery of how the foreign exchange from the 28-billion-rand deal – the biggest foreign direct investment in South African history – was handled, economists said.Annual growth in the broad M3 measure of money supply – which often points to inflation pressure building in the economy – quickened to 19,86 per cent from 17,08 per cent in June, well above a forecast level of 17,80 per cent.During the month itself, M3 money supply surged 33,4 billion rand compared with a 19,3 billion rise in June, highlighting an unusually large increase in bank deposits.At the same time the central bank’s July template for international reserves and foreign currency liquidity showed total reserves in the private banking sector leaped to US$19,7 billion in July from US$16,5 billion in June.Although it was unclear how the money entered the banking system without affecting the rand, the data suggested it stemmed from the Barclays deal and would be taken into central bank reserves in August, Nedbank chief economist Dennis Dykes said.”It seems that the money was held in the banking sector – there may have been an arrangement not to sell the dollars initially.There’s still something a bit strange happening but we may get the answer in next month’s reserves data,” he said.Barclays sealed its biggest investment outside the UK on July 27 by buying a 54 per cent stake in Absa.But July reserves data released early this month showed only a modest increase in the net foreign reserves of the central bank, baffling domestic markets.There has been no official comment on how the inflows from the deal have been handled, with Treasury and central bank officials describing the information as “market sensitive”.Other data released by the central bank showed that private sector credit demand jumped by 23,48 per cent in the year to July, above expectations and faster than an upwardly revised 22,03 per cent in June.-Nampa-ReutersBanking sector reserves leaped US$3,2 billion in the month, a surprising development which analysts said may have inflated money supply and could point to inflows from Barclays’ purchase of a majority stake in the country’s biggest retail bank, Absa.The two sets of central bank data may help to resolve the mystery of how the foreign exchange from the 28-billion-rand deal – the biggest foreign direct investment in South African history – was handled, economists said.Annual growth in the broad M3 measure of money supply – which often points to inflation pressure building in the economy – quickened to 19,86 per cent from 17,08 per cent in June, well above a forecast level of 17,80 per cent.During the month itself, M3 money supply surged 33,4 billion rand compared with a 19,3 billion rise in June, highlighting an unusually large increase in bank deposits.At the same time the central bank’s July template for international reserves and foreign currency liquidity showed total reserves in the private banking sector leaped to US$19,7 billion in July from US$16,5 billion in June.Although it was unclear how the money entered the banking system without affecting the rand, the data suggested it stemmed from the Barclays deal and would be taken into central bank reserves in August, Nedbank chief economist Dennis Dykes said.”It seems that the money was held in the banking sector – there may have been an arrangement not to sell the dollars initially.There’s still something a bit strange happening but we may get the answer in next month’s reserves data,” he said.Barclays sealed its biggest investment outside the UK on July 27 by buying a 54 per cent stake in Absa.But July reserves data released early this month showed only a modest increase in the net foreign reserves of the central bank, baffling domestic markets.There has been no official comment on how the inflows from the deal have been handled, with Treasury and central bank officials describing the information as “market sensitive”.Other data released by the central bank showed that private sector credit demand jumped by 23,48 per cent in the year to July, above expectations and faster than an upwardly revised 22,03 per cent in June. -Nampa-Reuters