Summary: Private sector credit increases modestly in December; just above expectations; housing responding to “cheap credit”, first-home buyers; continued steady growth in owner-occupier segment, assisted by rise in business loans; downturn “unlikely” to be as deep as past recessions.
The pace of lending to the non-bank private sector by financial institutions in Australia has been trending down since late-2015. Private sector credit growth appeared to have stabilised in the September quarter of 2018 but the annual growth rate then continued to deteriorate through to the end of 2019. The early months of 2020 provided some positive signs but they disappeared in April and they have not re-emerged as yet.
According to the latest RBA figures, private sector credit increased modestly in December, rising by 0.3%. The result was higher than the generally expected figure of 0.2% and November’s 0.1%. The annual growth rate recovered slightly to 1.8% from November’s comparable rate of 1.7%.
“Housing is clearly responding and responding strongly to cheap credit, as well as home builder programs encouraging a bring-forward of demand by first-home buyers,” said senior Westpac senior economist Andrew Hanlan.
Owner-occupier loans continued to grow steadily while business loans grew at a sluggish rate and personal debt fell again. Growth in the investor lending segment remained just above zero.
Long-term Commonwealth bond yields rose noticeably on the day, slightly outpacing higher US Treasury yields at the close of trading on Friday morning. At the close of business, 10-year and 20-year ACGB yields each finished 5bps higher at 1.14% and 1.85% respectively. The 3-year yield remained unchanged at 0.18%,
The traditional driver of loan growth rates, the owner-occupier segment, grew by 0.6% over the month, slightly faster than November’s 0.5%. The sector’s 12-month growth rate accelerated from 5.4% to 5.6%.
Growth rates in the business sector remained sluggish as business credit expanded by 0.2%, almost offsetting November 0.2% fall. The segment’s annual growth rate ticked up from November’s revised rate of 0.9% to 1.0%.