Private sector credit (loans outstanding) rose by 0.2 per cent in March. Credit stands 3.2 per cent higher than a year ago but has grown at a 2.2 per cent annualised pace in the past six months – a 38-month low.
What do the figures show?
- Private sector credit (lending) rose by 0.2 per cent in March after a 0.2 per cent rise in February. Annual credit growth fell from 3.4 per cent to 3.2 per cent – the slowest pace in 19 months.
- Housing credit grew by 0.4 per cent in March after rising 0.4 per cent in February. Housing credit is up 4.4 per cent on a year ago – equalling the weakest annual growth in records going back to 1976.
- Owner occupier housing credit rose by 0.4 per cent in March to stand 3.9 per cent higher than a year ago. And investor housing credit lifted 0.4 per cent in March to be up 5.4 per cent over the year.
- Personal credit rose by 0.1 per cent in March after rising by 0.1 per cent in February. Personal credit was down 0.1 per cent over the year, and has been falling in annual terms for 20 months.
- Business credit was flat in March after falling by 0.2 per cent in February. Business credit is 1.6 per cent higher than a year ago, after being up 2.3 per cent in the year to February.
- Monetary aggregates, M3 and broad money, are growing at the slowest pace in 30 months.
What is the importance of the economic data?
- Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.
What does it all mean?
- No change – Aussie consumers and businesses are still winding back debt levels. Still, it’s important to remember that credit is a lagging indicator – it reflects earlier decisions to increase borrowings and reduce outstanding debt. There are early indications in other statistics that people are starting to borrow again. But the pace of debt creation is not strong enough to offset debt repayment and refinancing activity.
- Weak growth in outstanding debt together with low inflation means that the Reserve Bank can cut rates further if it believes it will be beneficial. But with less indebtedness and fewer people wanting to borrow, a rate cut could prove more negative – reducing the income of savers. It is a difficult environment for lenders.