Daily Commentary BY THE CURVE TEAM –

Credit Sluggish

1st of March, 2021

Aggregate credit growth a stark contrast to loan approvals and house price sentiment.

Outstanding credit grew 0.2% in January to be up 1.7% for the year. This is extremely sluggish, being the lowest annual level since 2010.

The update is in spite of surging loan approvals and positive sentiment for house prices. There was some evidence of these in the data, with owner occupied housing credit up 0.54% for the month.

This was the highest of the categories of credit, which include business, personal and investor housing credit. These other categories explain the disparity between loan approvals surging and the sluggish growth of overall credit.

Amortisation is likely another key factor. Even if ADIs write new loans, if existing loans are paid off faster than usual with lower interest rates then the growth in credit is offset.

On Tuesday the monthly RBA monetary policy decision will be delivered. Slow overall credit growth and rising yields for longer dated government bonds will be considerations, but they are expected to leave their current policy unchanged.

There are a plethora of data releases this week. GDP for Q4 is released on Wednesday, and in the lead up GDP partials, including profits and current account data will be released.

Alongside these, loan approvals, building approvals, trade balance and retail sales data for January will all be released.

Josh Stewart

Associate - Money Markets