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Private sector credit growth continued to slow in August, according to figures released by the Reserve Bank of Australia (RBA) earlier today.

Credit extended to the private sector grew by just 0.4%, leaving the annual pace of growth at 5.8%, the lowest level since late 2014.

The chief catalyst behind the slowdown has been a deceleration in credit extended for housing, particularly to investors.

Housing credit rose by 0.5% — unchanged from July — leaving the annual growth rate at 6.5%, the slowest annual increase since July 2014. In November last year it was running at 7.5%.

“Investor housing credit growth continues to be moderate with investor lending at 0.5% m/m,” said Tapas Strickland, an economist at the National Australia Bank.

“Although this has been moderately stronger in recent months, the rate of investor credit growth is well down from the rates experienced in 2015 and in an annual sense is now growing at 4.6% y/y – well inside APRA’s 10% investor credit growth limit.”

Not only is investor credit growth running at less that half APRA’s annual speed limit, at 4.6%, it’s sitting at levels not seen since November 2009.

Tighter restrictions from lenders, along with lower turnover of housing supply, are the two main factors behind the deceleration.

Credit extended to owner-occupiers also rose by 0.5%, leaving the year-on-year increase at 7.6%, a small deceleration on the 7.7% pace of July.

This chart from Strickland shows monthly and annual growth in housing credit, breaking the headline figure down into owner-occupier and investor lending.

Outside of housing, credit extended for business and personal credit remained weak.

“Business credit remains weak, increasing just 0.1% m/m and continuing the past three months of more subdued reads,” said Strickland.

“Business credit growth is now at a year-ended rate of 5.7%, down from the tick-up experienced at the beginning of the year.”

Personal credit, the weakest of all three components in recent years, continued to contract, falling by a further 0.1%. It has now contracted by 1.2% over the past 12 months, the steepest year-on-year decline seen since June 2012.

According to Strickland, the subdued pace of credit growth will provide no impediment to the RBA should the bank deem it necessary to reduced interest rates further.

“The substantial moderation in investor credit growth is giving the RBA a degree of confidence that risks in the housing market have diminished,” he says.

“Today’s credit numbers should continue to see housing being no bar to further easing if the RBA deems this necessary for sustainable growth and for inflation to return to target over time.”

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