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Australia housing investor credit cools, rates seen on hold

Published 31/08/2015, 01:54 pm
© Reuters.  Australia housing investor credit cools, rates seen on hold
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* Growth in housing investor credit cools in July

* Weak business inventories offset by wages bounce

* RBA seen on hold on Tuesday

By Ian Chua

SYDNEY, Aug 31 (Reuters) - Growth in Australia's investor mortgage credit cooled to its slowest in nearly two years in July, an outcome that is likely to be welcomed by the central bank which is working with other regulators to curb lending to housing investors.

Other data out on Monday was mixed, with weak business inventories offset by a solid bounce in wage incomes, leaving intact forecasts for a soft gross domestic product figure (GDP) for the second quarter. The GDP data is due on Wednesday.

Overall, there is nothing in the latest set of economic reports that would push the Reserve Bank of Australia (RBA) to cut interest rates on Tuesday, when it holds its next meeting.

"The Reserve Bank is going to stay on the sidelines, this is the sort of economy that doesn't need a kick along at the moment," said Craig James, chief economist at CommSec.

All 25 economists polled by Reuters on Friday see the RBA keeping the cash rate unchanged at a record low 2.0 percent at the Sept. 1 meeting.

Figures from the central bank showed housing-investor credit growth slowed to 0.6 percent in July, from 1.0 percent in June, marking the lowest monthly change since October 2013. The annual rate eased to 10.8 percent, from 11.1 percent.

"The RBA would be encouraged by that, plus we have a pick in business credit as well, so that is a good sign that confidence is returning to the business sector. It gives some hope that non-mining investment is going to pick up," said Janu Chan, economist at St George bank.

Record low interest rates have stoked a house price boom in Sydney and Melbourne led by investor buying. This has prompted the RBA and other regulators such as the Australian Prudential (LONDON:PRU) Regulation Authority (APRA) to crack down on risky lending.

APRA recently announced tough new capital rules on the mortgage portfolios of banks and just last week, Chairman Wayne Byres said the regulator "remained open to taking additional steps, if needed."

"This indicates that APRA's macro prudential policy measures are impacting on investor credit growth with further regulation, including higher mortgage lending capital risk weights, expected to further weigh on mortgage lending growth in the coming months," analysts at ANZ wrote in a note to clients.

Monday's data from the Australian Bureau of Statistics showed inventories were flat in the second quarter, confounding the median forecast of a Reuters poll for a 0.3 percent increase.

Gross company profits fell an expected 1.9 percent but wages growth picked up to 1.1 percent, following three straight quarters of subdued outcomes.

Separately, a private survey showed inflation in August remained benign while an industry report said new home sales dipped slightly in July, but remained at historically high levels.

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