Australia’s appetite for credit continues to wane following interest rate hikes earlier this year, with the housing sector taking a big hit.

Credit figures released today by the Reserve Bank of Australia (RBA) reinforce signs of slowing in the economy and the likelihood of that official interest rates could be cut a number of times in the coming months.

Lending for housing, personal use and business rose 0.5 per cent in July, and was up 11.2 per cent in the year.

However, since May, the pace of credit growth has softened, and the July move was the slowest annual rate in six years, or since August 2002.

Demand for housing loans rose by 0.5 per cent in July and 9.8 per cent over the year - the slowest pace in 21 years, when the annual rate was 9.8 per cent in March 1987.

CommSec economist Savanth Sebastian said lending for property was bearing the brunt high interest rates.

“It is showing no signs of recovery,” Mr Sebastian said.

“Certainly investors are staying away from the housing market in droves.”

Other personal credit growth - personal loans and credit cards - fell by 0.7 per cent in July and rose just three per cent over the year - its worst annual pace of growth since March 1994.

It was the second straight month of growth in other personal credit had contracted, after a decline of 0.6 per cent in June.

ANZ economist Alex Joiner said the data confirmed consumers are reining their spending as household budgets became tighter.

“Weaker motor vehicle sales, less purchases on credit cards and evaporating interest in margin trading have seen consumer credit contract further this month,” Dr Joiner said.

Meanwhile, businesses credit growth rose again, and was up 0.7 per cent in July and by 15 per cent over the year.

JP Morgan economist Helen Kevans said business lending was the key driver of credit growth in July and in line with a stronger than expected rise in capital expenditure for the June quarter data, revealed in data released yesterday.

The Australian Bureau of Statistics said new capital spending rose 5.7 per cent in the quarter, nearly three times the market’s forecast of two per cent.

“The survey showed that capital spending intentions remain solid, with firms intending to boost spending 32 per cent in the year ending June 2009 - it appears that the business investment cycle is far from over,” Dr Joiner said.

Dr Joiner said heightened expectations of interest rate cuts later this year should start to cushion credit growth in late 2008.

“We anticipate that credit growth should begin to show signs of improvement in 2009 as interest rates are cut further from mid next year and conditions and sentiment begin to improve.”

The official cash rate currently stands at a 12-year high of 7.25 per cent.

Economists widely expect the central bank to cut rates by a quarter of a percentage point after its board meeting next Tuesday.

AAP