Brace for record low rates: Pete Wargent

Brace for record low rates: Pete Wargent
Brace for record low rates: Pete Wargent
CoreLogic's home value index for July will show that Sydney's prices have blazed 5.6 percent higher over the last quarter and a rip-snorting 10.3 percent in 2016 to date. 
 
 
Brace for record low rates: Pete Wargent
 
And interest rates to fall further? Interesting times. 
 
Credit growth slows
 
The Reserve Bank (RBA) has an inflation target of 2 to 3 percent, and the latest figures this week showed that inflation is running well below that level, and the softest inflation result in 17 years.
 
On Friday the RBA released its Financial Aggregates figures for the month of June which showed total credit growth slowing.
 
Investor credit growth - denoted by the red line below - has more than halved to an annual pace of just 5 percent now, while personal credit growth remains weak, and business credit went backwards in the month. 
 

Brace for record low rates: Pete Wargent

All up annual credit growth slowed to 6.2 percent, with broad money growth a little slower at 6 percent.

Brace for record low rates: Pete Wargent

Business...as usual

Unfortunately business credit growth printed negative in June, taking the annual result back to 6.6 percent, a disappointing reading which might point towards a cut in interest rates. 

Brace for record low rates: Pete Wargent

Banks and housing
 
While growth in term deposits remains understandably weak, other deposits with banks continue to surge at a very strong double digit pace. 

Click to enlarge
Brace for record low rates: Pete Wargent

In the housing market investor credit growth slowed to 5 percent, now tracking at just half the arbitrary "speed limit" imposed by APRA. 
 
Naturally banks and lenders have been pushing owner-occupier loans, but even here growth slow by a tiny fraction from 7.73 to 7.72 percent, having notched a 70-month high in May. 
 

Brace for record low rates: Pete Wargent

Total housing credit growth of 6.7 percent is now well below the 7.5 percent rate hit in November last year, which will provide some comfort that macro-prudential measures are doing what they were designed to do.
 
The wrap
 
Overall, while nobody seems quite so sure any more what the split of credit relates to, total credit of $2.57 trillion is now growing at a slower pace of 6.2 percent, down from 6.7 percent in October last year. 

Brace for record low rates: Pete Wargent

Another factor in this week's interest rate decision was that US real GDP printed at an annual pace of just 1.2 percent in Q2 2016, meaning that the US Federal Reserve won't be hiking rates soon.

The Aussie dollar jumped to 76 US cents, and will probably jump higher again if interest rates are not cut on Tuesday.

Bookies and financial markets are leaning towards an interest rate cut in Tuesday to a record low of 1.50 percent. 
 

PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His latest book is Four Green Houses and a Red Hotel.

Pete Wargent

Pete Wargent

Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

Tags: 
Interest Rates

Comments

Be the first one to comment on this article
What would you like to say about this project?