Australian private sector credit shrank for the first time since 1992 in December as foreign banks cut lending to local companies amid the global credit crunch, backing expectations of a big interest rate cut next week.
A weakening housing market and falls in commodity prices have also added to the slowdown, with growth hitting an eight-year low in the third quarter and prompting the central bank to slash rates by 3 percentage points since September to 4.25 percent.
Figures from the Reserve Bank of Australia (RBA) on Friday showed total credit fell by 0.3 percent in December, well below a forecast of a 0.5 percent rise, after rising 0.4 percent in November. Growth for the year slowed to 6.7 percent, its slowest pace since April 1994. Finance for businesses fell 1.1 percent, the first decline since December 1992, while lending for housing rose a modest 0.4 percent as the threat of the economy slipping into recession saw Australians reduce their willingness to borrow. "The poor breakdown supports another large rate cut next week," said Su-Lin Ong, senior economist at RBC Capital.
"Under pressure and facing a squeeze on margins, businesses are clearly not expanding and have little appetite for debt and growth." Indeed, a Reuters poll of 20 analysts on Friday found the RBA was expected to cut its key cash rate by 100 basis points to a record low of 3.25 percent when it meets on February 3. The futures market is pricing in the cash rate at 2.5 percent in March, having factored in a reduction to 3 percent a month earlier. That is likely to see the RBA opt for a more aggressive easing of monetary policy.