Economics Editor

GROWTH in money supply and demand for credit moderated in March, confirming a benign inflation outlook that may not warrant a rate hike this year, economists said yesterday.

Figures released by the Reserve Bank yesterday supported its positive inflation outlook, that CPIX (consumer inflation excluding mortgages) would remain within the 3% to 6% inflation target this year.

However, casting a shadow over the positive inflation outlook are concerns about the rising oil price and the rand's volatility.

Brent crude oil reached a 13year high of $35,32/barrel yesterday after foreigners were killed at a Saudi Arabian chemical plant last weekend, sparking

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fears of disruption in oil supply from the Middle East.

The rand has also been on a weaker trend in recent weeks on rising expectations of an interest rate hike in the US in coming months.

The rand broke briefly above R7 to the dollar yesterday, but recovered to trade at about R6,85 (R6,9807) as the market awaited the interest-rate decision from the US Federal Reserve's federal open market committee last night.

However, yesterday's money supply figures, taken in conjunction with last week's better-thanexpected consumer and producer inflation, told the same story of fairly benign inflationary pressure in the economy.

Growth in the broad measure of money supply, M3, slowed to 13,97% year on year in March, compared to February's rise of 14,85%, while private sector credit demand grew 7,25% in March, down from a revised 7,74% growth in February.

Accelerating growth in money supply implies a build-up of inflationary pressure in the economy, with the figures being closely watched by the Bank's monetary policy committee.

Sanlam Investment Management economist Christian Prins said that with CPIX expected to remain within the target range until next year there was no cause for interest rates to rise this year.

"The combination of the money supply figures and the consumer and producer inflation figures last week which were below expectations adds to the positive inflation outlook and for interest rates to remain stable this year," said Prins.

Yesterday's figures show that underlying credit demand by households, which excludes the volatile investment and bills discounted category, remained firm, rising 12,33% year on year in March compared to February's growth of 12,49%.

There was a strong pick-up in the subcategories, such as leasing finance, which grew 3% month on month in March, while instalment sales and mortgages advanced at a brisk pace during the month.

However, the acceleration in credit demand was not concerning, according to Standard Bank economist Monica Ambrosi.

May 05 2004 09:07:37:000AM Nasreen Seria Business Day 2nd Edition