Private Sector Credit Extension (PSCE)

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.