Daily Commentary BY THE CURVE TEAM –

Credit Surges

3rd of May, 2021

A laggard for much of the economic recovery, credit for March showed very positive signs.

Credit was up 0.4% for the month. Excluding February and March 2020 numbers, which saw a temporary spike in credit as the pandemic hit, this monthly result is the highest since 2018.

Because the February and March numbers are now not included in the annual number, annual credit fell from 1.6% to 1%. Given the strong monthly figure and continuing strength of the economic recovery annualised credit growth is expected to increase over the year.

Housing again was at the forefront of the growth. Owner occupied credit grew 0.67%, which is likely related to the HomeBuilder grants expiring.

Business and personal credit also grew, up 0.3% and 0.2% respectively after being hit hard over 2020. Annualised business credit is down 2.6% and personal lending down 10.7%.

Credit growing is particularly relevant for inflation. Should the increase be sustained then there will be more upward pressure on housing which will flow through to inflation.

Tomorrow the RBA will announce their policy decision for the month and on Thursday will release their statement on monetary policy, which will contain updated economic forecasts. No change is expected in their current policy stance, but an updated employment forecast is expected with current data well ahead of their February forecasts.

Deputy Governor Guy Debelle will deliver a speech on Thursday following the updates. Also this week is trade data and loan approvals data for March, which is released tomorrow and building approvals for March, which are released on Wednesday.

Josh Stewart

Associate - Money Markets