Australia's credit growth pickup after RBA rate cut

Australia's private sector credit slowed markedly in monthly terms in April to the weakest in 18 months, but following the RBA's latest rate cut at the start of May  a rebound is expected. It is not only that the 25bp reduction in the RBA's rate - which was largely passed on with mortgage rates declining by 20bp - ought to have given credit demand another slight push, but that the anticipation of a rate cut is likely to have kept borrowers in wait-and-see mode in April, says Societe Generale. 

In addition, the weakness in credit growth to businesses in April is likely to have been a shortterm phenomenon, caused partly by the normal volatility in this segment and also perhaps by the uncertainty ahead of the budget, adds SocGen. 

The budget's positive reception by businesses - as reflected in the jump in business sentiment - suggests some lifting of 'animal spirits', leading to a greater willingness to invest and hence take up credit. Whether the introduction of the generous depreciation allowance for small business investments will have already had an effect in May is open to debate, but it is highly likely to lead increased spending over coming months. 

Lastly, the most tentative signs that credit to housing investors has been reduced by the macroprudential measures introduced by APRA, and so expect this segment to continue to grow at annualized rates of 10-11%, according to SocGen.