JOHANNESBURG, Dec 30: Growth in credit demand by South Africa's private sector slowed to 26.77 per cent in the year to November, but was close to October's record 27.24 per cent, adding to risks of a further interest rate hike.

During the same period the broadly defined M3 measure of money supply grew by 25.33 per cent, from 23.51pc in October, central bank data showed.

Both figures were higher than expected as five economists surveyed by Reuters had forecast that private sector credit demand would have risen by 26.4 per cent year-on-year last month and the annual growth in M3 would be 24.4 per cent.

“It's worse than expected. It clearly shows that the private sector is borrowing as if it's never borrowed before,” said George Glynos, economist at Econometrix Treasury Management.

“It's unfortunate that it's growing this rapidly because we think it forces the Reserve Bank's hand to some extent. We still hold the view that the SARB (South African Reserve Bank) may need to hike rates one last time in February by 50 basis points.”

South Africans have largely brushed aside interest rate hikes of 200 basis points to 9 per cent since June, happily financing their spending with credit.

“Instalment credit demand is still increasing at a quick pace during November, although the total instalment credit is only 12.3 per cent higher than in November 2005,” said Efficient Research economist Nico Kelder in an analyst note.

This tendency to spend on the back of fast economic growth in Africa's biggest economy has pushed household debt to a record 73pc of disposable income, adding to inflationary pressures.

“This (growth in credit extension) might also just be a function of banks trying to lend out as much as possible before the new credit act comes into play and the end of the spending season is a good opportunity to do just that,” said Glynos.—Reuters