Urbis Think Tank

Today the Reserve Bank released their monthly financial aggregates that showed housing credit up by 5.3% for the year to March and business credit up by 1.3%.

However, the big fall was for the category of “Other personal credit” which is down by 1.5% for the year. This category is dominated by credit card balances, which shows that consumers have paid down some of their debt, and are not keen to increase the use of their plastic in a hurry.

The following chart shows there has been a double dip. First, the red line shows there was the big splurge from 2006 to 2008 that ended in the first major dip in credit in 2009 as consumers realised they had become far too overextended. Next, credit card balances rose in 2010-11, but over the past months, there has been a small double dip in credit balances, which is what the RBA reported today.

Clear impacts on Retail from lower credit

The blue line showing Retail Trade was boosted during the splurge, and growth rates have been noticeably impacted by the reduction in personal credit since 2008. The chart shows that Retail was getting back on its feet with some growth last year, but the double dip in personal credit has flattened the growth in recent months.

With the RBA certain to lower interest rates tomorrow, this will provide cheaper housing loans and might provide some scope for increased use of credit cards, debit cards or cash. However, it’s unlikely that credit card interest rates will move and combined with the new consumer conservatism towards personal credit, the no-growth trend in personal credit doesn’t look like changing any time soon.