RBA credit rose 0.3% in November for an annual rise of just 3.5%. Within that, annual growth in housing credit remained at a record (34 year) low of 5.7%. Consumers and business are not borrowing much – or the banks aren’t willing to lend much – a sure sign that growth muddled through to the end of 2011 at a below trend pace.
The house price data showed a very tepid 0.1% rise in November, disconcertingly soft after 10 straight months of house price falls. House prices clearly remain under pressure, a key fact to consider when analysing the economic outlook given the well-known and powerful effect house prices have on consumer wealth, confidence and spending and also importantly on bank balance sheets.
Obviously the RBA knew credit and housing were weak when deciding to cut interest rates in November and December against the ranting of a few ill-informed few commentators. The interest rate cuts will, with a lag, work to arrest the weakness in credit and house prices. They would have had almost no impact on the November data. Whether on-going consumer caution or the negative effects of the global downturn overwhelm the positive influences of lower interest rates remains to be seen. I suspect house prices will get weaker before finding a true base in the second half of 2012. There is also a matter of a substantial excess stock of houses on the market which will inevitably keep downward pressure on house prices at least in the near term.
Along with a bunch of other economic news, there will be further reading on both credit and house prices before the next RBA Board meeting. Important in this space will be the release of the ABS quarterly house price series as a guide for the RBA.
That said, the Australian data flow for 2011 ends on soft note. Credit is weak and housing prices moribund. There’s nothing at the moment to deflect the RBA from its path of cutting interest rates in February with the debate remaining whether to front load a 50 basis point cut or go the softly-softly 25 basis points.