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Australia: Credit Growth Weak ahead of RBA Rate Cut

Credit growth weak ahead of RBA rate cut. May: 0.2% mth, 3.6%yr.

Credit growth was weak ahead of the RBA lowering interest rates on June 4, the first move in official rates since 2016.

Credit growth has slowed to a sluggish pace as the housing sector weakened in response to tighter lending conditions and a softening of demand. In April and May, another factor was broadly flat results for business credit.

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Total credit grew by only 0.15% in April and then by 0.16% in May, the softest results since the start of 2013. In May, the mix was: housing, +0.23%; personal, -0.6%; and business, +0.1%.

Annual credit growth is 3.6% currently, the slowest pace since October 2013. Credit growth has progressively eased since expanding by 6.6% in 2015, with growth moderating to 5.6% in 2016, +4.8% in 2017 and +4.3% in 2018.

Key to this trend has been the housing sector. Housing credit growth has moved lower over recent years: from 7.4% in 2015; 6.3% in both 2016 and 2017; to 4.7% in 2018. The latest annual reading is 3.7%, the weakest reading in the history of the series (dating back to the late 1970s.)

In 2018, the housing sector downturn accelerated as lending conditions tightened further. New lending contracted by 5.9% in the six months to June 2018 and then fell sharply, down by 14.5% in the six months to December 2018. The downturn broadened to owner-occupiers, with finance to this segment only 2.3% lower in 2018H1 then slumping 13.9% over 2018H2.

Early in 2019, the pace of decline in new lending has eased, consistent with some stabilisation of auction clearance rates.

Looking ahead, the prospect for a stabilisation of the housing market has improved. Sentiment has bounced following the May 18 Federal election, with the return of the Coalition government. The RBA lowered rates in June, with follow-up cuts likely, and APRA is proposing to moderate the buffer for mortgage serviceability assessments.

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