Australia’s housing and business credit growth likely strengthened sequentially in August

At the beginning of August, the Reserve Bank of Australia lowered the cash rate, but the private sector credit growth is expected to have decelerated further in year-on-year terms. However, with the possibility of a small rebound in monthly growth in housing and business credit, a slightly strengthening in month-on-month growth is expected, stated Societe Generale in a research note. Particularly in housing credit, even if the central bank’s 25 basis point reduction was just partly passed on to borrowers by the four huge banks, certain rise in loan demand might have occurred as compared to July, added Societe Generale.

Elevated auction clearing rates and continued rises in property prices also indicates towards that direction. Nonetheless, the annual pace of growth of housing loans is expected to have decelerated further in months ahead, given  that recently monthly gains have averaged at about an annualized pace of 6 percent while the annual rate was at 6.6 percent in July, and is likely to come in at 6.4 percent in August.

Recent weakness in credit growth was also related to a sudden drop-off in lending growth to businesses from average monthly annualized rates of 7.3 percent and 5.3 percent in the first quarter and second quarter respectively, to only 1.1 percent in the three months to July, noted Societe Generale.

“We are at this stage inclined to put that mainly down to the typical volatility in this component which tends to be lumpy, and expect a rebound to around 0.5% mom (6% annualised). Such a reading would be consistent with evidence of a gradual strengthening in non-mining investment”, added Societe Generale.