Borrowing boom easing but rates still to rise

The prospect of an third official interest rate rise next month remain firm although the chances that the Reserve Bank might defer such a move until March have grown this week. Softer consumer and commercial finance figures suggest the first interest rate rise in November may have had an early impact on borrowing behaviour across the board.

Add to that the Melbourne Institute leading index of economic activity pointing to a moderating of economic growth from mid-2004 and it may give the RBA some breathing space in which to further consider its next move. But another hike in rates still appears inevitable within a month or two. The economy is strong and the domestic and international outlook solid. Rates are still at levels consistent with expansionary monetary policy at a time when the RBA wants to bring them up to neutral – meaning at least another 0.25 per cent higher.

The number of November housing finance commitments for owner-occupiers fell 3.9 per cent seasonally adjusted on the back of falls in both loans for existing home purchases and for construction of new homes. The value of property investors' loan commitments also fell, down 2.8 per cent in the month. Personal non-housing loan commitments also declined, a more modest fall of 1.3 per cent but this follows six months of steady increases.

A 4.8 per cent fall in new motor vehicle sales in December also suggests that the effervescence in the economy may be subsiding in the wake of higher rates. Such a trend remains to be confirmed in subsequent months but these are the clearest figures yet to emerge that the consumer borrowing binge may be easing off. They will be welcome news at the RBA.