RBA figures show economy is slowing

3rd June 2008

While the RBA would be pleased its long-running program of monetary tightening is having the desired affect, the news is not so good for renters.

Figures released on Friday by Reserve Bank of Australia (RBA) show total credit provided to the private sector grew by just 0.4 per cent in April - the slowest monthly increase since 2002.

Over the year to April, total credit rose by 14.1 per cent.

CommSec economist Savanth Sebastian said the data showed the economy was slowing sharply with higher living costs taking a toll on consumer borrowing.

"The higher oil prices and soaring food prices are adding to the stress on the household budget and consumers are cutting back on borrowing with no room to move in the household budget," he said.

But in a telling blow for renters, the figures also show a sharp decline in loans for property investment, meaning the current housing shortage is set to worsen.

Loans for investors to buy residential properties grew by a sluggish 0.5 per cent in April, bringing annual growth in this category down to 9.5 per cent, the slowest annual growth in 16 years.

"The housing market shows no signs of recovering and investors are staying away from the housing market in droves," Mr Sebastian said.

"We are just not building enough houses and the strength in population growth is likely to see rents increase even further."

However, the news is a little better for borrowers.

The moderation in growth suggests they may be spared further interest rate pain as it provides evidence that the RBA's efforts to rein in inflation are working.

The RBA has raised rates four times since August in an attempt to bring inflation, presently at 4.2 per cent, back within its mandated target band of between two and three per cent.

The central bank was likely to remain on the interest rate sidelines until later in the year, Mr Sebastian said.

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