Australian Lending Stagnates Amid Signs Economy Is in Recession
Australian bank lending growth unexpectedly stalled in February, adding to signs the nation’s economy may be in its first recession since 1991.
Total loans provided by banks and other finance companies were unchanged from January, when they rose 0.6 percent, the Reserve Bank of Australia said in Sydney today. The median forecast of 18 economists surveyed by Bloomberg News was for a 0.5 percent gain.
Central bank Governor Glenn Stevens cut the benchmark interest rate between September and February by a record four percentage points to stoke an economy that shrank 0.5 percent in the fourth quarter. To spur domestic demand for homes and to prevent a slump in house prices, Prime Minister Kevin Rudd in October tripled a grant to first-time buyers of newly built dwellings to A$21,000 ($14,300).
“Business credit growth is choppy from month to month and on a weakening trend,” Bill Evans, chief economist at Westpac Banking Corp. in Sydney, said ahead of today’s report. By contrast, “housing credit growth” has been holding up, he said.
Australian sales of newly built homes rose 3.9 percent in February, with sales of detached houses gaining 4.7 percent, a report by the Housing Industry Association showed yesterday.
First-time buyers accounted for a record 26.5 percent of dwellings that were financed in January, up from 18.1 percent a year earlier, a report on March 11 showed.
Interest Rates
Stevens and his board are forecast to lower borrowing costs by at least another quarter point on April 7, according to 12 of 16 economists surveyed by Bloomberg News on March 27. Four tip no change in the overnight cash rate target.
Policy makers left the benchmark rate unchanged at 3.25 percent this month for the first time since August, saying recent cuts are supporting the economy.
Since September, commercial banks have reduced the rate on variable home loans by 375 basis points cash advance loans. The rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 percent of property buyers in Australia have variable-rate mortgages.
“It is clear that monetary policy has been effective in lowering borrowing rates in the Australian economy,” said Anthony Richards, head of economic analysis at the Reserve Bank said on March 26.
Treasurer Wayne Swan said yesterday Australian banks have so far this year sold as much as 10 percent of all global bonds guaranteed by governments, making Australia the third-biggest issuer of such debt behind the U.S. and France.
Job Losses
“This money is ensuring our banks continue to lend to businesses and households, which is providing vital support for Australian jobs and growth,” Swan said in Tokyo.
Still, there are signs demand for credit may wane in coming months as a deepening global recession erodes demand for natural resources from the world’s biggest shipper of iron ore and coal.
Recent reports showed business confidence held near a record low last month and the jobless rate rose to a four-year high of 5.2 percent as companies such as BHP Billiton Ltd. fired the largest number of full-time workers in almost two decades.
Lending to companies fell 0.6 percent in February, after advancing 0.7 percent in February, according to today’s central bank report. Total credit rose 5.4 percent in February from a year earlier, after gaining an annual 6.1 percent in the previous month.
Credit provided to consumers for purchases other than housing dropped 0.8 percent from a month earlier. Loans to consumers to buy houses rose 0.6 percent for an annual gain of 7.1 percent.