- Corporate loan growth accelerated to seven-year high of 7.4%
- Business lending outpacing mortgages for first time since 2009
Australian businesses are stepping up their borrowing at the same time mortgage growth is slowing, providing encouragement for central bank efforts to steer the economy away from its reliance on mining and housing.
With record low interest rates spurring businesses to invest, annual company loan growth eclipsed the pace of home-loan expansion for the first time in more than seven years, according to Reserve Bank of Australia data. Lending to businesses accelerated to 7.4 percent in April, the most since January 2009, while mortgage volumes were up by 7 percent year-on-year.
The central bank has dropped its main benchmark by 3 percentage points since late 2011 to cushion the decline in mining investment and sliding commodity prices, taking the cash rate to 1.75 percent in May. While the RBA’s easing cycle has been most clearly felt in the housing sector with record dwelling prices and a construction boom, demand for corporate loans has also steadily gathered pace since mid-2015 and business conditions have improved. Data released Wednesday showed the annual pace of economic growth accelerated to 3.1 percent in the first three months of 2016.
“It appears that housing is tentatively passing the baton to corporate credit growth,” said Hans Kunnen, Sydney-based chief economist at St. George Bank, a unit of Westpac Banking Corp. “The RBA has warned about the pace of housing credit growth and that has now come off. Business credit is expanding, which is exactly what the RBA wants.”
Kunnen expects mortgage growth to “stabilize” at current levels and sees corporate loan growth “creeping up” to a range of about 8 percent, he said.
Mortgage growth has come off from a peak of 7.5 percent in November as regulators have forced lenders to tighten borrowing standards, increase the amount of capital they hold against such loans and limit their lending to landlords. The moves came after capital city dwelling prices soared by 50 percent since 2008.
The RBA cut its cash rate by a quarter point last meeting, its first move in a year, and has also predicted that core inflation is likely to remain below the bottom of its target range this year. The swaps market is currently pricing a more than 50 percent chance of another reduction in the coming six months, data compiled by Bloomberg show.
Despite the weakening in inflation, the RBA’s growth forecast for 2016 remained unchanged at 2.5 percent to 3.5 percent and it expects unemployment to remain around the current level of 5.7 percent. Gross domestic product growth for the first quarter eclipsed analyst expectations, expanding by 1.1 percent from the previous three-month period, the government announced Wednesday. The Aussie dollar jumped as much as 0.9 percent in response and was at 72.97 U.S. cents as of 12:14 p.m. in Sydney.
“We have got some sort of transition going and some parts of the economy are looking better, but other parts look to be topping out and weakening,” said Andrew Ticehurst, a Sydney-based interest-rate strategist at Nomura Holdings Inc. “It’s a complicated picture.”