Australian Building Approvals Fall 4.7%, Credit Growth Stalls

Glenn Stevens, governor of the Reserve Bank of Australia
Glenn Stevens, governor of the Reserve Bank of Australia. Photographer: Carla Gottgens/Bloomberg

Sept. 30 (Bloomberg) -- Australian home-building approvals fell in August by the most in three months and credit growth stalled, giving central bank Governor Glenn Stevens scope to delay a resumption in interest-rate increases.

The number of permits granted to build or renovate houses and apartments dropped 4.7 percent from July, the Bureau of Statistics said in Sydney today. A separate report by the central bank showed credit provided by lenders rose 0.1 percent, missing the median estimate of 20 economists surveyed by Bloomberg News for a 0.3 percent gain.

The local dollar fell as traders pared bets that Reserve Bank of Australia policy makers will restart the most aggressive round of interest rates increases by a Group of 20 member as early as next week. The bank today also published a report showing the nation’s financial system remains in strong condition as its four largest banks reported a 15 percent surge in earnings after “fully recouping” higher funding costs caused by the global crisis.

Today’s weak building approvals and credit growth reports “highlight why I don’t think the RBA should, or necessarily will, be hiking” next week, said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “Credit growth is just above recessionary levels.”

Local Dollar

The Australian dollar fell to 96.74 U.S. cents at 12:44 p.m. in Sydney from 97.04 cents just before the reports were released, after yesterday reaching its highest level against the dollar in more than two years and parity with Canada’s currency.

Approvals to build private houses fell 4.3 percent to 8,208 in August from July, today’s report showed. Those for private sector apartments and renovations advanced 1.4 percent to 4,313. The 4.7 percent decline in total approvals also missed analyst’s predictions for a 2.3 percent gain.

Today’s reports add to evidence that Governor Stevens’s six interest-rate increases from October to May, which boosted the benchmark lending rate by 150 basis points to 4.5 percent, are cooling demand in the nation’s property market. Those moves added about A$3,600 ($3,490) a year to repayments on an average A$300,000 mortgage.

Dwelling prices fell 0.2 percent in August across Australia’s eight largest cities, extending the decline since May to 1.2 percent, real estate monitoring company RP-Data said today.

Fitch Ratings said yesterday it will conduct stress tests on Australian mortgages as concerns mount that the nation’s housing market may collapse.

The testing will examine the impact of various levels of price declines on Fitch’s Australian residential mortgage-backed securities portfolio, banks and mortgage insurers, the ratings company said in a statement. The results of the testing will be completed by the middle of the fourth quarter, it said.

Rate Bets

Traders calculate a 48 percent chance of a quarter-point boost to the benchmark rate to 4.75 percent at the central bank’s meeting on Oct. 5, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:39 p.m. Prior to today’s data, the chance of an increase stood at 56 percent.

Still, the RBA’s report today on Australia’s banking industry was “reasonably positive in its assessment of the economy, while highlighting the underlying strength of the financial system,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney.

Shadow System

Australia has a smaller so-called shadow banking system than the U.S., a key reason that local lenders didn’t “transmit the same kinds of shocks to the system during the recent financial crisis as in some other countries,” the RBA said.

Eighty percent of the Australian financial sector by assets is made up of banks and other lenders that are overseen by the Australian Prudential Regulation Authority. By contrast, such institutions account for only around half of the financial sector in the U.S., where more “shadow” firms such as hedge funds exist, the RBA said.

“Australia’s financial system, while not immune to swings in sentiment affecting global markets, has come through the disruptions to date in relatively good shape,” the bank said.

The central bank will need to resume raising interest rates if a mining investment boom continues to stoke the nation’s economy, the International Monetary Fund said.

“Should the recovery unfold as expected, monetary policy will need to tighten further to contain inflation pressures generated by the mining boom,” the Washington-based IMF said in its annual Article IV report published today.

A report this month showed gross domestic product rose 3.3 percent last quarter from a year earlier, beating the median estimate of analysts for a 2.8 percent gain and the 3 percent increase forecast by the central bank on Aug. 6.

The IMF predicts GDP will rise in 2010 and 2011 by 3 percent to 3.5 percent, led by mining investment and commodity exports. Inflation will be 3 percent over the next three years, the IMF said today. Central bank policy makers aim to keep inflation between 2 percent and 3 percent on average.

To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net; Victoria Batchelor in Sydney at vbatchelor@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net