Johannesburg — BUSINESS has joined the clamour for another cut in interest rates after new data yesterday showed borrowing by companies fell in July, signalling private sector investment will stay on the back foot in the near term.

Overall, private sector credit extension rose 2% versus July last year, accelerating from 0,9% in June and well above consensus forecasts for a 1,5% rise. But a breakdown of the data shows the rise was driven by a modest pickup in household borrowing.

Corporate borrowing fell 1,7% after a 2,4% fall in June, suggesting private companies, uncertain about the pace of recovery, are unwilling to invest or create jobs. "There now appears to be a good case for a further modest cut in interest rates" at the Reserve Bank's policy meeting next week, Business Unity SA (Busa) said.

It said yesterday's data reflect weak corporate credit demand, in step with news last week of a slowdown in inflation, along with weaker economic growth.

"While a further (interest rate) reduction ... is no panacea, it will help to rebuild business and consumer confidence at a critical stage in the business cycle."

Busa is SA's largest business group, and seldom comments on economic data or makes calls ahead of interest rate decisions.

Markets are fully pricing in the expectation that the Bank will trim its key repo rate by half a percentage point to 6% next week.

Most economists have fallen in step with this view, although a few say it will be a close call.

"Recent data may ... be labelled as key," Nomura economist Peter Attard Montalto said. But with a worsening global outlook and markets pricing in a cut, the Bank will find it hard not to do so, as it will "otherwise send too strong a signal that all was fine with the world", he said.

Analysts are hoping the Bank's governor, Gill Marcus, will provide some "guidance" as to whether the rate cut speculation is warranted when she lectures at the University of Johannesburg in Soweto tomorrow.

Growth in borrowing by households picked up 4,6% in July compared with the same month last year, up from 4,3% in June, yesterday's data show.

Mortgage advances, which make up 70% of that component of the data, rose 4,5% after a 4% increase in June. Instalment sales, which make up 12%, rose by 10,6% - up from 10% in June.

Consumers' spending is the economy's main engine, so news that they are doing "somewhat better" is welcome, Absa Capital economist Jeff Schultz said. But the data point to "very little risk" of demand-driven inflation pressures in the near term. Growth in corporate credit is unlikely to "show a meaningful recovery" until companies are more "confident that the economic upturn would be sustained", he said.

Investec economist Kgotso Radira said the Soccer World Cup is likely to have "distorted" the credit data by boosting activity. Credit demand will remain positive, but will still post single-digit growth in the year overall, he said. That backs arguments for lower lending rates.

Concern about employment prospects will also curb growth in credit and spending this year, said Standard Bank economist Shireen Darmalingam. Economic growth slowed to 3,2% in the second quarter from 4,6% in the first. Despite the expansion, thousands of jobs were shed in that period.

Vunani economist Johan Rossouw said the credit data could be the "spanner in the works" for the expected interest rate cut.