Thanks to record low interest rates, Australian businesses are stepping up their borrowing as corporate loan growth accelerates to a seven-year high of 7.4 per cent. Coupled with slowing mortgage growth, the rise in business lending is providing encouragement to the Reserve Bank for steering the economy away from mining and housing.
The central bank has dropped its main benchmark by three percentage points since late 2011 due to sliding commodity prices and declining mining investment, hence taking the cash rate to 1.75 per cent in May. But while this has clearly been felt in the housing sector, it also brought about steadily increasing demand for corporate loans and improving business conditions.
“It appears that housing is tentatively passing the baton to corporate credit growth,” said St. George Bank chief economist Hans Kunnen. “The RBA has warned about the pace of housing credit growth and that has now come off. Business credit is expanding, which is exactly what the RBA wants.” He said that corporate loan growth could increase up to a range of 8 per cent.
Meanwhile, mortgage growth is on a decline as regulators have forced lenders to tighten borrowing standards, increase the amount of capital they hold against such loans, and limit their lending to landlords.
“We have got some sort of transition going and some parts of the economy are looking better, but other parts look to be topping out and weakening,” said Andrew Ticehurst, an interest-rate strategist at Nomura Holdings, Inc. “It’s a complicated picture.”
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