Daily Commentary BY THE CURVE TEAM –

Investor Credit Falls for Only the Third Time on Record

1st of August, 2018

The importance of yesterday’s data release from the RBA shouldn’t be under estimated as it points to further headwinds for the economy ahead. It also saw something happen for only the 3rd time in the past 30 years which is not a good sign for the housing market.

Yesterday the RBA released their credit aggregates for June which saw the annual rate of the level of credit outstanding in the economy continue to slow. Total outstanding credit grew by 0.3% over the month with the annual rate slipping from 2.8% to 4.5%.

The key highlight from the data was the continued slowing in broad money growth. The annual rate of broad money growth slowed from 2.5% to 1.9% despite a 0.2% rise for the month. After largely flatlining in the previous six months, the uptick in broad money growth will be well received. However, the gap between credit and broad month growth suggests further slowing in the pace of credit growth over the months ahead.

Much of the slowing in credit growth has been driven by investors exiting the market. The monthly credit approval data complied by the RBA has shown new investor credit approvals have been slowing for months as banks crack down on investor lending and the outlook for the housing market deteriorates.

In June, the pace of new credit for investors wasn’t enough to offset the amount of repayments with total investor credit falling for only the third time in the last 30 years when the RBA first started collecting data. The only other time that outstanding investor credit has fallen was August 1991 and February 2009. That was during “The recession we had to have” and the GFC.

The fall in investor credit and slowing in overall credit growth is not a good sign for the housing market that has already been slowing for a number of months. The RBA remains optimistic that the current slowing in the housing market will not impact the broader outlook for the economy and thus is expectations around monetary policy.

For now the slowdown in the housing market is orderly. If the decline gathers pace and starts to spread to other housing related sectors, their assessment could quickly change. We will get an update on the RBA’s outlook next week in their Quarterly Statement on Monetary policy which will be a must read given growing headwinds to the outlook for growth.

David Flanagan

Director - Interest Rate Markets