Private Sector Credit – January 2015
- Total credit to the private sector rose by 0.6% in January. Annual growth stepped up to 6.2%.
- Housing credit was up 0.6% over the month and sits 7.1% higher on year ago levels. Growth in the investor component has breached the 10% threshold APRA has set.
- Business credit rose by a respectable 0.8% in January and there are firm signs that commercial lending growth has lifted.
Low interest rates, firm population growth, investor speculation and expectations of capital gains continue to drive housing credit growth which is running at its fastest annual pace since February 2011. And business credit growth has lifted also on the back of record low borrowing rates.
The Australian Prudential Regulation Authority (APRA) has said that credit growth to housing investors should not exceed 10%. Media reports suggest that APRA will release data later today showing housing lending levels by each Australian bank.
Housing credit growth is running well above national income growth which means that the household debt‑to‑income ratio is lifting. It is currently at a record high. Lower commodity prices and weak wages growth are weighing on national income growth.
Business credit rose by a decent 0.8% in January and stands at 5.5%pa. A lift in business credit growth would be consistent with the expected pickup in non‑mining capex over the near term. Yesterday’s capex survey indicated that non‑mining capex should lift over 2014‑15, but beyond that the outlook is less positive and indeed less clear. It may be that a softer AUD is encouraging some businesses to lift capital investment. These developments will be welcomed by the RBA and perhaps there are some indications that we may be seeing a lift in ‘animal spirits’ – time will tell.
Other personal credit was flat over January and stands at just 0.8% higher on year ago levels. Soft personal credit growth reflects some fragility in consumer confidence and job security concerns.
Private sector credit aggregates were the last data release for February and we now head into March with a full data suite coming out next week and also an RBA meeting. The market looks largely split as to whether the RBA will cut rates next Tuesday. Notwithstanding today’s pickup in credit, the data flow has been soft over the past month and the two most important prints for policy since the RBA last met (unemployment rate and capex expectations) point towards further policy easing. In addition, the AUD has traded largely sideways over the past month and it’s clear that the RBA wants to see it lower to help the Australian economy rebalance. In that context, we favour a rate cut next week.
