Rates pressure: private credit inches up

Loans for real estate continued to increase in August, but personal loans slipped as rising interest rates took their toll, Reserve Bank data show.

Housing loans rose 0.6 per cent in August, matching a 0.6 per cent rise in July, the RBA said today.

“Households will come under increasing pressure to make interest payments particularly given interest rates are likely to move into contractionary territory over the coming year as the economy heats up,” said economist Matthew Circosta of Moody’s Analytics.

Personal loans decreased 0.2 per cent in the month, after being flat in July, while business credit shrank by 0.6 per cent in August, following a 0.2 per cent decline in July.

Mr Circosta said the deceleration of private sector credit overall meant the previous rate rises by the RBA are having traction with the economy.

Total credit provided to the private sector by banks, credit unions and lenders grew by 0.1 per cent in August, also matching a 0.1 per cent increase in July, but below expectations of a 0.3 per cent rise.

“We actually saw a deceleration in private sector credit growth and that means the RBA’s tightening so far has really done its job,” said Mr Circosta.

“These data don’t add to the case that rates should be hiked in the next month.”

The market is currently expecting the RBA to lift rates to 4.75 per cent next week from the current 4.5 per cent level, as it seeks to head off inflationary pressures before they impact Australia’s growth.