RBA ready to cut rates again as consumers shun credit

Submitted 2/04/2009

AAP

Consumers and businesses continue to shun credit despite savage interest rate reductions by the Reserve Bank of Australia, and the central bank says it is ready to cut again.

New RBA data shows zero growth in total credit in February.

Credit growth in the year to February slipped to just 5.4 per cent, compared with a brisk 15.5 per cent 12 months earlier.

Growth in personal credit - excluding home loans - fell 0.8 per cent in February and shrank at an annual rate of 6.0 per cent.

Business loans declined 0.6 per cent to an annual growth rate of 5.5 per cent.

However, housing credit for owner-occupiers grew 1.0 per cent, the fastest pace since December 2007, for an annual rate of 8.6 per cent.

Earlier, RBA deputy governor Ric Battellino told a conference in Brisbane that while the central bank's cuts totalling 400 basis points are helping to shield the economy, the easing is unlikely to prevent a recession.

"The monetary policy transmission process has been effective and there remains scope to ease policy further if circumstances require," Mr Battellino told the Urban Development Institute of Australia National Congress 2009.

Financial markets are pricing in a 25-basis-point cut in the official cash rate to 3.0 per cent when the central bank board meets on April 7.

Mr Battellino said spending measures undertaken by the Federal Government are offering some protection for the economy.

"These measures will go a long way to offsetting the negative influences on the economy coming from abroad, but the reality is that we cannot fully insulate ourselves from what is happening elsewhere in the world," he said.

"As such, GDP is likely to fall in 2009.

Gross domestic product shrank 0.5 per cent in the December quarter, the first contraction in the economy in eight years. The March quarter national accounts data will be released on June 3.

By convention, a recession is measured by two consecutive quarters of shrinkage in GDP.