Mortgage Loan Interest Rates

Higher interest rates slow business, personal and mortgage lending

The rate of growth in lending to Australian business and the growth of personal and mortgage credit has slowed to its lowest level in a year and a half as higher interest rates make borrowing more expensive. Read More

Total credit provided to Australian businesses and households by banks and other financial intermediaries rose by just 0.9 per cent in December, less than the 1.1 per cent rise in November, the Reserve Bank of Australia said today.

Three interest rate rises in 2007 are starting to offset tight labour market conditions making it tougher to borrow especially for housing, economist said.

That may ease pressure on the Reserve Bank of Australia (RBA) to raise interest rates further.

"Despite robust labour market conditions, the household sector has clearly reacted to the three interest rate hikes last year," ANZ head of financial system analysis Paul Braddick said.

Housing credit grew by one per cent and was unchanged for the third consecutive month, and rose by 14.5 per cent over the year, seasonally adjusted.

"After expanding strongly in 2005/06, the demand for housing finance has slowed significantly, providing some comfort for the RBA," Mr Braddick said.

"However, given the underlying strength of household income, the RBA will keep a watchful eye on developments in early 2007 for any sign of a rebound."

Over the year to December, total credit rose by 14.7 per cent.

Other personal credit climbed by 1.3 per cent in the month and by 12.5 per cent over the year.

But while business credit increased by 0.8 per cent in the month, it continued to slow from previous months despite being up 15.6 per cent over the year.

The RBA may need to see more proof that the slow down in borrowing is more wide spread before easing its grip on interest rates, some economist said.

"Monetary policy has not materially led to a sizeable further deceleration in credit demand in December given all of the fall was from the volatile business credit lending," NAB Capital analyst David DeGaris said.

"Credit growth is slowing, but at much less spectacular rates."

The RBA, which last raised interest rates by a quarter of percentage point to 6.25 per cent in November, is scheduled to announce its next interest rate decision on February 7 although a change is not expected.

Source: AAP