The November credit aggregates confirmed that outside of mortgage lending, households and businesses remain reluctant to lift gearing and remain focussed on balance sheet repair.
Business credit expanded by 0.2% in November to be 4.5% higher than a year ago, while personal credit has been stagnant in the past year. The recovery in personal and business credit since the crisis has been painfully slow. Business credit has only just reached its pre-crisis peak, while personal credit remains around 10% below its pre-crisis peak (see chart). That animal spirits in the corporate and household sectors remains dormant suggests that money has been tighter than implied by interest rates being at multi-decade lows.
The only part of the economy where animal spirits are buoyant is housing. The stock of housing credit is 7% higher than a year ago, driven by owner-occupiers, but mainly investors. Momentum in investor housing credit remains strong and it is noteworthy that it is 10% higher than a year ago. Glenn Stevens, the RBA Governor, has previously flagged concerns about this segment growing at double digit rates, given that many of these loans are interest only.
Clearly, concerns that monetary policy ought to lean against the possibility of a bubble in housing continues to occupy the upper echelons of the RBA. Deputy Governor Phillip Lowe, has previously published work with the Bank of International Settlements, suggesting that central bankers should be wary of large asset price gains when they associated with rapid growth in credit. Thus the credit aggregates appear to be taking on greater importance in helping the RBA to disentangle fundamentals from speculative elements of asset price inflation.
As long as growth in business credit remains sluggish, bad and doubtful debts are likely to remain low by historical standards, while the anaemic growth in personal lending provides little cheer among discretionary retailers.