The latest private credit data released this morning means we should still expect a rate cut of up to 1% when the Reserve Bank board meets for the last time in 2008 in Sydney on Tuesday.

Some economists reckon we could get a cut of 0.75%, as a survey of economists by AAP this morning suggested.

Others reckon it could be 1%, such as Rory Robertson of Macquarie and the economics team at Goldman Sachs JBWere, who both say there’s a good chance the central bank will go for its second 1% cut in three months.

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The bank wants to cut rates as quickly possible to slow the slump in the economy. Goldman Sachs believe the economy is already in recession: we will know next Wednesday with the September quarter’s National Accounts.

Certainly there was nothing in the credit growth figures to suggest that the RBA shouldn’t give us another big cut: home lending and personal lending are low and slowing, but business leading seems to have bottomed out.

Growth in private credit continued to ease in October, although business lending seems to have stabilised, according to figures from the RBA this morning.

The bank said that “total credit provided to the private sector by financial intermediaries rose by 0.6% over October 2008, following a rise of 0.8% over September. Over the year to October, total credit rose by 9.7%.”

That was the slowest annual growth rate since October 1995, while the monthly rate of 0.6% was steady on September’s growth figure. Business lending grew 1.1% in October, which was a touch slower than in previous months, but the annual growth rate steadied at 13.2% for the year to October, the same as for the 12 months to September.

But home lending to owners and investors continued to slow. While the growth is still positive, it remains at levels associated with those of more than 20 years ago. The monthly growth figure was last seen in April 1986, the yearly figure for the 12 months to October was the lowest since early 1983.

Personal lending fell 1% in the month and the annual growth rate is now -0.1%, as more investors were margin called and credit card advances eased. The 1% fall in October in personal lending was the largest for some years and matches the experience in other major economies. It was in fact the slowest monthly and annual growth figure since 1993 and the end of the last recession. But business lending wasn’t as impacted as it has been in the US and UK in the same month: the rise of 1.1% was on par with growth rates in some of the preceding months of 2008.


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Peter Fray
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