The release Friday of the October private sector credit aggregates by the Reserve Bank of Australia (RBA) revealed ongoing weak credit growth across the three broad categories: housing, personal, and business credit (see next chart).
Total private sector credit grew by only 0.11% over the month of October and has risen by only 3.84% in year-on-year terms.
Most notably, housing credit grew by only 0.34% over the month and by 4.65% over the year, which is the lowest rate of growth in the series’ 35-year history.
The continued slowing of housing credit growth comes despite -1.50% of cuts to official interest rates by the RBA since November 2011, which have cut average variable mortgage interest rates by -1.15% over this period. As shown by the next chart, this is the weakest response to interest rate cuts since the financial sector was deregulated in the mid-1980s:
The slow growth in housing credit following the latest round of interest rate cuts suggests that monetary policy has lost some of its potency which, when combined with ongoing weak new home sales and housing construction data, is likely to lead to significant further cuts in interest rates by the RBA as the mining boom unwinds.
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
