Australia | Mar 31 2008
By Greg Peel
The good news is that it appears what the RBA has been trying to accomplish by inflicting pain on borrowers is beginning to bear fruit in the stats. It is thus a given the RBA will not raise interest rates tomorrow, maybe not following first quarter inflation numbers in May, and perhaps not at all this year.
Who knows? Perhaps rates will be lowered before the year is out.
Australian private sector credit growth grew by 0.7% in February, the lowest growth in five years. The annual growth rate fell from 16.2% to 15.5%. Businesses are feeling the pinch of higher rates, as business credit growth fell to 0.5% – the lowest growth rate in 18 months – while the annual growth rate fell from 24.0% to 22.3%.
But the real impact was felt in personal credit. Personal credit receded by 0.1% in February following a 0.3% fall in January. The last time two consecutive months of personal credit reduction were recorded was in July 1993, following the big recession.
Obviously Australians are now keen to pay down debt on credit cards and other borrowings as interest rates rise and the general mood swings away from indulgence and back to frugality.
And the housing market is also coming off the boil. Housing credit grew by 0.9% in February to a seven-year low annual rate of 11.4%. Owner-occupier growth was up 1.0% and investor growth up 0.6%.
But despite a clear reduction in credit demand, fuelled by higher rates, the higher cost of fuel, and stock market losses, not all economists are convinced the RBA has finished yet. Rate hikes usually take 3-4 months to filter through the system so further credit growth reductions are expected in ensuing months. But there remains those who believe the upcoming March quarter inflation data will force yet another 25 basis points out of the RBA; to 7.5%.