RBA Credit and House Prices SCREAM, don’t hike

July 29, 2011

FOREX, RBA and Interest Rates

It’s not a great time to be a retailer in the Australian economy and the banks, retailers of home loans, are doing it tough at the moment as shown by the Credit Aggregates just released by the RBA.

They said,

Total credit provided to the private sector by financial intermediaries decreased by 0.1 per cent over June 2011, after rising by 0.3 per cent over May. Over the year to June, total credit rose by 2.7 per cent.

Housing credit increased by 0.3 per cent over June, following an increase of 0.5 per cent over May. Over the year to June, housing credit rose by 6.0 per cent.

Other personal credit declined by 0.4 per cent over June, after decreasing by 0.1 per cent over May. Over the year to June, other personal credit increased by 0.3 per cent.

Business credit declined by 0.7 per cent over June, after being flat in May. Over the year to June, business credit declined by 2.4 per cent.

Over the month of June, M3 declined by 0.5 per cent and broad money decreased by 0.6 per cent. Over the year to June, broad money grew by 6.8 per cent.

All growth rates for the financial aggregates are seasonally adjusted, and adjusted for the effects of breaks in the series as recorded in the footnotes to tables. Figures showing the levels of financial aggregates are not adjusted for series breaks. Historical levels and growth rates for the financial aggregates have been revised owing to the resubmission of data by some financial intermediaries, the re-estimation of seasonal factors and the incorporation of securitisation data.

For me there are two really important charts I want to share with you that coming on top of the RP Data – Rismark House Price data this morning tells us the economy is into a negative feedback loop and a rate hike next week just might credit the preconditions for a spiral.

 

Check out this chart. It is the month on month change in Housing Credit. This Month’s growth rate of 0.3% is the lowest since 1984! Yep 1984.

The next chart below show the annual rate of growth in the stock of housing debt. It’s yet to go negative yet, so as my colleague over at MacroBusiness, Houses and Holes, always says we are “dis-leveraging” but I’m guess we’ll see real genuine de-leveraging in the coming year.

Here is the chart of what the 4 RBA data series look like together year on year. All are trending down and the recent increased demand for business lending looks to have peaked – and why wouldn’t it? Who’d want to leverage up in this economy.

As Sir Humphrey Appleby used to say – it will be a courageous decision for the RBA to raise rates next week after this data today. Lets hope that the TD-MI inflation data Monday doesn’t give them renewed vigour to pull the trigger.

This might just be enough to change those votes I blogged about this morning – I hope so.

greg@lighthousesecurities.com.au

www.twitter.com/gregorymckenna

This blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If you do need economic, investment or financial advice we are happy to help.

Please Email the team at Lighthouse at info@lighthousesecurities.com.au or Greg directly on greg@lighthousesecurities.com.au

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