Business lending tight. Rate hopes rise

Business credit went backwards in February, shrinking by 0.6 per cent during the month.

This was the second time, since the global financial crisis struck last September that this has happened.

Reserve Bank statistics, released yesterday, show that business credit also fell by 1.1 per cent in November.

As the bank has just produced raw figures, this time, its bulletin does not show whether Australia’s banks got scared and  stopped lending to business, or whether it was business, itself, which reduced its borrowing.

Either way, these figures are a sign that the global crisis is now hitting Australia hard.

However home lending continued to grow in the month, mainly for owner occupied housing.  The bank’s figures show this rose by 1 per cent during the month.

Lending for investment homes, though, fell by 0.2 per cent.

An RBA  deputy governor Ric Battellino attributed the rise in owner occupied housing loans to a combination of the Federal government’s  expanded first home  owners’ grant and lower interest rates.

But he also warned that  Australia’s gross domestic product is likely to fall this year.

That implies a recession, a word that the Prime Minister, Kevin Rudd, and his senior ministers have been very reluctant to use.

Mr Battellino also signalled that another rate cut is likely, when the Reserve Bank board meets next Tuesday, to review Australia’s  interest rates.

“…there remains scope to ease policy further if  circumstances require,” he  said.