Thu 30 Nov 2006

Credit growth up, housing credit falls

Lending to the private sector continued to expand last month supported by demand from business, although housing lending slowed, new figures show.

Lending to the private sector continued to expand last month supported by demand from business, although housing lending slowed in the wake of interest rate hikes, new figures show.

The data from the Reserve Bank of Australia (RBA) for October were gathered before the central bank's rate rise earlier this month, following similar moves in August and May.

Economists said the private sector credit report would be on the RBA's radar when its board meets next week, for the last time this year, to discuss monetary policy.

But they expect the bank will keep official rates on hold at a current 6.25 per cent well into 2007, as it waits to see how the impact of the November hike trickles through the economy.

Total credit provided to the private sector by financial intermediaries rose by 1.1 per cent in October, and by 14.7 per cent over the year.

The result was in line with expectations for a rise of one per cent and followed one per cent rise in September.

Westpac senior economist Andrew Hanlan said the October figures showed housing credit growth was slowing in response to higher interest rates.

Housing credit grew by only 0.8 per cent in the month, which was smallest monthly growth rate in six years, and compared to 0.9 per cent in September.

The annual rate was 14 per cent, down from 14.2 per cent in the previous month.

"Notably, housing credit growth has slowed in response the May and August interest rate rises," Mr Hanlan said.

"Moreover, the November rate rise will act to reinforce this slowing trend."

National Australian Bank senior markets economist Spiros Papadopoulos said overall credit growth in the month was certainly driven by lending for businesses.

Business credit increased by 1.6 per cent, the highest rate of growth in over a year, with the annual growth rate climbing to 16.7 per cent.

However, a slowing in business sector was anticipated.

"The RBA can afford to leave the cash rate where it is for an extended period," he said.

Meanwhile, other personal credit grew by 0.4 per cent in October and by 10.8 per cent over the year.