Borrowing rebounded in January but consumers continue to reduce their debt as fears of a recession loom.

Total private sector credit rose 0.6 per cent in January, Reserve Bank of Australia (RBA) data released on Friday showed, a turnaround from the 0.2 per cent decline in December

The annual pace of growth fell by 0.4 percentage points to 6.1 per cent in December, the slowest since March 1994 and below the 16.4 per cent peak in December 2007.

Nab Capital senior economist David de Garis said there was more life in credit growth than many feared despite the annual pace continuing to slow.

“It’s a piece of evidence that the RBA would think that the slowdown in credit growth has eased off and maybe last month’s outright contraction might yet be the outlier,” Mr de Garis said.

Borrowing for personal purposes, which includes credit cards, margin loans and personal loans, decreased by 0.2 per cent in January.

“Other personal credit” contracted for the eight consecutive month in January, the longest run of shrinking personal credit other than for housing since the 1991-92 recession.

JP Morgan economist Helen Kevans said the monthly decline in personal credit was the mildest since June 2008, yet anticipated more falls with tighter access to credit, cheaper assets and low confidence.

“The wealth destruction occurring in the highly leveraged household sector has encouraged a large portion of the population to pay down debt and/or boost precautionary savings, rather than take on additional loans,” Ms Kevans said.

Demand for housing finance rose 0.5 per cent in January, with the annual growth rate slowing to 7.4 per cent from 7.7 per cent in December.

It was the weakest annual rate of growth since February 1983.

Commsec economist Savanth Sebastian said the effect of the RBA cutting interest rates since September was starting to flow through to home loans.

“Falling interest rates and an improved deposition by first home buyers has seen a marginal improvement in credit for owner occupied housing,” Mr Sebastian said.

Business credit rose 0.7 per cent in the month, and increased 6.8 per cent in the year.

ANZ economist Alex Joiner said the increase in business credit supported the six per cent rise in capital spending during the December quarter.

“However, we anticipate business credit growth will remain under consistent pressure through the year, despite lower interest rates as the domestic economic environment continues to soften,” Dr Joiner said.

AAP