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RBNZ sees slower credit growth

NZN 12/05/2017 Paul McBeth

The Reserve Bank expects credit growth to slow as banks fight more aggressively for deposits to fund their expanding loan books.

Central bank figures show annual home loans grew at an annual pace of 8.7 per cent in March, slowing from a pace 9.1 per cent in December.

Business lending growth slowed by 0.4 of a percentage point to 7.1 per cent and the pace of agri lending growth shrank to 2.7 per cent from 3.9 per cent.

Banks have been complaining about the rising cost of funding in recent months, saying they've needed to go overseas to access more expensive credit lines and boost deposit rates to maintain their lending growth, which has squeezed profit margins.

Deputy governor Geoff Bascand says the RBNZ anticipates lending growth will slow down to match deposit growth, which was up an annual 7 per cent in March, but doesn't expect it will halt lending to households altogether.

"We expect credit growth to slow down a little bit towards the deposit growth, and they're trying to push deposit growth up through deposit rates," Mr Bascand told BusinessDesk in an interview after Thursday's policy announcement.

"How much that pushes total deposits as opposed to a bit of competition amongst the banks just shifting it around, we're yet to see."

The drive for customer deposits comes as New Zealand's household saving rate is in negative territory, with the Reserve Bank projecting it was at -2.9 per cent of disposable income in the 2017 March year when the slump in dairy prices weighed on farming families' incomes.

"Debt levels are high and have been rising again after a period of moderation. We think still that households will be a bit constrained and cautious about going too far," Mr Bascand said.

"Households are certainly getting the message, we hope, that there's a prospect interest rates could move and if you've got a lot of debt and rates move up, debt servicing wouldn't be very comfortable."

The Reserve Bank surprised some economists on Thursday when it held its projected track for the official cash rate through the forecast horizon, looking through what it deemed to be one-off boosts to headline inflation.

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