Wednesday, 31 October 2007

Aust Demand for Credit Remains Strong

Demand for credit remains solid
Demand for credit continued at a solid pace in September, despite an interest rate rise in August, and adding to the case for a further hike next week.

Total credit grew 1.2 per cent in September for an annual pace of 15.9 per cent, down only slightly from 16.0 per cent in the 12 months to August, Reserve Bank of Australia data (RBA) released on Wednesday shows.

This is still higher than the 15.3 per cent annual pace recorded in July and prior to the last rate rise.

Economists had forecast a 1.0 per cent increase in September.

The RBA is widely tipped by economists and financial markets to raise its cash rate to 6.75 per cent from 6.5 per cent next week on the back of data showing an acceleration in underlying inflation.

It would be the sixth increase since the 2004 election adding to the burden of highly-indebted households and impacting on the Howard government's re-election chances.

It will also delay a recovery in home building and keep pressure on housing affordability.

Other data released today by the Australian Bureau of Statistics shows building approvals jumping 6.8 per cent to 13,710 units in September and now standing 4.2 per cent higher than 12 months ago.

Economists had expected a 0.7 per cent increase.

The increase was largely due to the more volatile `other dwellings component' - such as apartments and townhouses - surging 13.8 per cent.

House approvals rose 2.5 per cent for the month tracking 2.6 per cent lower than a year earlier.

The RBA data showed housing credit rose 0.8 per cent in September for annual pace of 11.7 per cent, while business credit grew by a further 2.0 per cent for a large 23.3 per cent increase over the year.

Demand for personal credit was the only soft spot in the report, falling 0.2 per cent for an annual rate of 11.4 per cent.