The Household Credit crunch

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I think the January Credit data just released by the RBA is very interesting. Total credit growth to households is very slow — on the month the 0.17%m/m increase is the second slowest since 1991 and the 0.2%m/m (3mma) increase it’s the slowest ever in trend terms.

The reason is that the housing credit growth component slowed to a fresh cycle low of 0.24%m/m, as owner-occupiers continued to slow down toward the flattish investor housing credit growth numbers (Owner Occupier was +0.33%m/m & Investors +0.05%m/m). Personal credit had the worst month since 2011, shrinking by 0.63%m/m. There are only six months that have been worse for personal credit since 1992, and five of them were in 2008/9.

The combined effect was to slow total credit to households (Housing + Personal) by ~5bps to +0.17%m/m (+0.2%m/m in 3mma terms).

There is only one month in modern history that’s worse for total household credit growth: October 2008 was 1bps slower, at 0.16%m/m. That was only one month. This is the all time low in 3mma terms.

One of the key ways the RBA controls the economy is by shifting the cash rate to ration credit. Right now, it looks like we could do with less rationing.


  1. Good to have you back on a (seemingly) regular basis.

    The question is what will be the trigger for the RBA to actually cut rates? House prices are already falling, growth is already back below trend (to be confirmed next week), inflation is already below target and for quite some time, etc. It seems unlikely that housing credit is going to make a miraculous recovery in the short-term. This is not your usual cycle right now!

    1. I think conditions are in place for a cut. We just need the rba to revise down so that growth is clearly below trend — and then they will lose the upward slope in their cpi projection. Once that happens surely even Lowe mist cut — he needs a story about CPI going back toward target to show he takes his target seriously.

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