Growth in borrowing by households and private companies rose more than expected in May, suggesting domestic demand was holding up despite sluggish economic growth, Reserve Bank figures released on Friday show.

Credit extension is seen as one of the main health gauges for the economy, which faltered in the first quarter of this year.

The signs from official data so far suggest the pace of economic growth slowed further in the second quarter of this year.

Private-sector credit extension growth accelerated to 8,31 percent in May compared with the same month last year, up from 7,33 percent in April and against market consensus for a rise of 7,95 percent.

Ilke van Zyl, Absa Capital economist, noted the figures reflected both base effects as well as a pick-up in household credit.

"Having said that, these figures are nothing to get excited about and we expect the market to continue to price in a rate cut in the second half of the year," she said.

The growth in credit extended to the private sector was mainly driven by the other loans and advances component, an indicator of demand for credit by companies.

Household credit growth, which accounts for 53 percent of total credit, lifted to 7,5 percent on an annual basis from 7,2 percent.  Unsecured loans, which includes personal loans, microloans, overdrafts and credit cards, increased significantly, as households take advantage of the lower interest rate environment.

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