S.Africa credit demand falls for first time since 1966

By Phumza Macanda

JOHANNESBURG (Reuters) - Demand for credit by South African companies and households fell for the first time since 1966 in October, suggesting recovery from recession will be slow.

The weak state of private sector finances raised hopes that the central bank could cut interest rates again to help stimulate demand.

The central bank said on Monday credit demand fell by 0.42 percent year-on-year in October compared with 1.49 percent growth in September. Economists had forecast a rise of 0.21 percent in a Reuters poll last week.

During the same period, growth in the broadly defined M3 measure of money supply braked to 2.67 percent from 4.0 percent previously, compared with a consensus of 3.3 percent.

South Africa emerged from its first recession in almost two decades in the third quarter but the recovery is expected to be slow given that household and company finances remain tight.

Rising unemployment, high debt levels and tough trading conditions have curbed the appetite of companies and households for more loans.

"Essentially it is still a reflection of what's going on on the corporate side. There is still a fall in credit on that side. It's also still a reflection of the weak state of domestic economic activity," said Ian Marsberg, macro strategist at Absa Capital.

The central bank cut interest rates by 5 percentage points between December 2008 and August to help stimulate the economy but left them unchanged at 7 percent at its last three meetings.