Australia | Apr 30 2008
By Chris Shaw
The Reserve Bank of Australia (RBA) remains concerned about inflation and its plan to deal with the problem via increasing official interest rates to slow the economy appears to at last be working based on the latest credit data for the Australian economy.
Today’s figures show private credit rose 0.8% in March compared to an adjusted 0.6% increase in February, ANZ Bank noting the outcome was in line with expectations. However, within the number private credit growth outside of mortgages is starting to slow as the RBA’s tighter monetary policy begins to impact on consumer behaviour. Consumer credit (ex mortgages) fell 0.2% in March having risen 0.1% in February.
While mortgages grew at a healthy 0.8% in March, personal credit has now fallen at 2% annualised over the first quarter, ANZ notes.
Commonwealth Bank agrees, senior economist Michael Workman suggesting the data is indicative of households becoming more cautious in terms of their debt levels and spending given the tighter environment. Further evidence of this comes from the housing finance figures as Workman notes while owner mortgages continue at solid levels investor mortgage growth continues to trend lower.
The outlook for business credit is also a little less rosy as the figures show a rate of increase of 0.9% for March, which Workman points out compares to an average rate of increase of around 2% a month in 2007. While the slowing is not yet a concern he suggests there are implications for planned capital spending programs in coming months if the trend continues.
Westpac senior economist Andrew Hanlan suggests the moderation in business credit was expected given the recent strength and in the face of a weaker global economy, but he points out the figures still suggest reasonable levels since in annualised terms the 11% growth currently being achieved remains above the pace of nominal economic activity.
For ANZ the data adds to the evidence in favour of the RBA taking a patient approach in terms of any further increases in official interest rates as the signs clearly point to a slowing in economic avtivity levels. Workman though remains of the view the RBA will likely hike again at its next meeting, as the recent CPI data shows inflation remins a concern and is likely to remain so through the course of 2008.