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August 30, 2024
August 30, 2024

Private Sector Credit Extension (PSCE): Demand for Credit in South Africa

Credit demand remains under pressure as high interest rates still weigh on consumers and businesses decision to borrow more. With lower inflation levels recorded in both producer and consumer inflation hopefully the Reserve Bank will start an interest rate lowering cycle to aid a struggling South African economy that has been stagnant for the couple of years.

Aggregate demand in South Africa is assessed through various indicators that reflect the overall health of the domestic economy. One key variable in this assessment is the demand for credit, which provides insight into the economy’s appetite for borrowing under the current interest rates set by the South African Reserve Bank (SARB).

From 2016 to 2021, credit demand declined from approximately 10% to around 5%. In response to the COVID-19 pandemic in 2019, the SARB aggressively reduced interest rates, lowering them from about 6.25% in January 2020 to 3.5% by July 2020. This strategy aimed to stimulate economic demand during the pandemic. Initially, credit demand continued to fall; however, signs of growth began to emerge in early 2021. By December 2022, credit growth had rebounded from a 5% contraction in January 2021 to nearly 10% year-on-year growth.

The availability of “easy” credit, due to lower global interest rates, contributed to inflationary pressures across various economies. In response, the Reserve Bank gradually increased the interest rate from 3.5% to 8.25%, resulting in a decline in credit demand, which has now dropped to around 3.5%.

Currently, inflation rates are decreasing at both the producer and consumer levels. Overall demand in South Africa remains weak as consumers and businesses grapple with elevated costs, higher levels of indebtedness, and increased interest rates. There is hope that the SARB may initiate an interest rate reduction cycle in the upcoming months, which could help stimulate demand and potentially provide a needed “economic spark” for an economy struggling to navigate high costs and interest rates.


Frederick Mitchell

Frederick Mitchell is an economist with 16 years of experience, specializing in the intersection of politics, economics, and finance on both domestic and international levels.

His extensive background spans the private sector, where he worked in equity and investment, as well as the public sector, where he served as a senior economist at SARS.

As part of the Aluma team, Frederick leverages his expertise to identify sectors with growth potential and assess those with higher risk, providing valuable insights and strategic advice.


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