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Australian private sector credit grows 1.2%m/m

Australian private sector credit grows 1.2%m/m in September

Growth in Australia’s private sector credit aggregates moderated as expected in September, following an upside surprise in the previous month. RBA credit aggregates grew 1.2%m/m (JPMorgan 1.2%, consensus 1.0%), after jumping 1.4% in August (revised from 1.5%). Annual growth in total credit pulled back mildly to 15.9%oya in September from a downwardly revised 16.0% in the previous month (previously 16.2%).

A breakdown of the data showed that growth in housing finance remained steady at 0.8%m/m in September for the third consecutive month. Personal lending, though, remained weak, slipping 0.2%; this fall follows a rise of just 0.1% in August and a 0.2% fall in July. Personal borrowing has remained subdued since mid-year, having soared in June (+4.1%) as people opportunistically borrowed to boost their superannuation fund balances. As anticipated, business borrowing again underpinned demand for credit in September, growing 2.0%m/m, although slowed from a 2.5% spike in August.

Presumably, this business borrowing will be used to fund investment in additional capacity and infrastructure, aimed at alleviating the capacity constraints restraining growth in activity, particularly in the mining sector. For this reason in part, while RBA officials will be anxious that credit continues to expand so rapidly, growth led by the corporate sector is deemed more favourable than excessive credit inflated by household borrowing. That said, RBA officials will remain wary that credit continues to expand as such a rapid pace, meaning that a firm policy tightening bias will be maintained.

JPMorgan expects the RBA to raise the cash rate 25bp on November 7 and, with annual headline and core inflation likely to breach the top end of the central bank’s 2-3% target band in 4Q, the risk is that the RBA raises the cash rate more than one more time in the current tightening cycle. To a certain extent, though, the monetary policy outlook will depend on the tone of the Fed’s verbiage following the FOMC meeting today.

Other data today showed that building approvals surged 6.8%m/m in September (JPMorgan 2.5%, consensus 1.0%), after falling 1.8% in August (revised from -1.7%). A breakdown of the data showed that the total number of building approvals for private sector houses rose 2.5%m/m in September, while approvals for other private dwellings spiked 13.8%. On a state and territory basis, building approvals rose on a seasonally adjusted basis across the nation, excluding the Northern Territory and the ACT. In these two territories, where only non-seasonally adjusted data is available, building approvals slumped some 20%m/m in September.

The series remains considerably volatile, however, with no clear trend emerging in the approvals data to date through 2007. Still, the risks remain skewed to the downside. Building and material costs in the residential construction sector remain elevated and excessive red tape is deterring new development, while higher interest rates will likely weigh on new home building going forward.


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