CBA predict home loan rates to hold until may

CBA expect the RBA to lift the home loan cash rate to 4.25% in May as part of the gradual shift to more normal settings.

Today’s February RBA Credit data continued the favourable pattern of the past seven months. Thankfully, it did not replicate the weakness apparent in today’s other releases on building approvals and retail trade. Consumer related borrowings for housing and personal use (credit cards and margin loans) are expanding at modest rates of growth. We still see their monthly growth rates as likely to lift very gradually as the better news on jobs growth feeds into improving income growth and consumer confidence. The missing ingredient of firmer wages growth appears to be on the way for the second half of 2010.
Housing credit rose by 0.7% in February to be 8.5% higher over the past year. There are underlying divergent trends in housing lending overlaid by the volatility from the First Home Buyers group. The underlying trends are that new lending is offset to an extent by higher than required repayments by existing mortgage holders. The volatility comes from the build-up in First Home Buyer activity through 2009 and then its sharp fall since late 2009. In the bigger picture, variable mortgage rates are just above 6.5%, well below the 7.9% average of the past 20 years.
Business credit repeated January’s 0.1% fall in February to be down 7.6% over the past year. We still expect to see some small positives registered in coming months. Anecdotal evidence points to an easing of credit constraints and stronger demand from corporates. Gearing ratios for listed groups are at relatively low levels, implying that firms could be at the end of the deleveraging cycle. There is also clearly a determination to lift planned business investment, especially by the mining sector, judging by the ABS Capex surveys. The bounce back in most of the business surveys to levels similar to 2007 is quite positive for business investment, and the labour market, over 2010/11.
Personal credit rose by 0.4% in February to be 1.4% higher over the past year. The major reason for the positive monthly personal credit numbers is the gradual lift in margin trading loans as the share market recovers. Consumers appear to be gradually changing their relatively cautious use of their credit cards. Annual growth rates in credit card balances, the number of accounts and average balances per card are rising away from around zero. On our measures there appears to be a gradual move away from the use of debit cards (or their own cash) towards greater use of credit cards.
Source CBA Economics



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