Bank lending up again after borrowing costs cut

Australian bank lending increased in April for a fourth month after the central bank cut borrowing costs to the lowest level in half a century and government handouts spurred demand for home loans.

Loans provided by banks and other finance companies climbed 0.1 per cent from March, when they also gained 0.1 per cent, the Reserve Bank of Australia said in Sydney yesterday.

The median estimate of 18 economists surveyed by Bloomberg News was for a 0.2 per cent rise. Mortgage lending advanced 0.7 per cent in April.

Central bank Governor Glenn Stevens cut the benchmark rate by a quarter-point to 3 per cent in April, the sixth reduction since early September, to spur an economy in its first recession since 1991.

Demand for home loans is being stoked by Prime Minister Kevin Rudd's decision in October to triple a grant to first-time buyers of newly built dwellings to A$21,000.

"Credit is sluggish overall," said Annette Beacher, an economist at TD Securities in Singapore.

"The optimists will point to home lending being strong, but pessimists like myself will look at the business-sector lending", which declined.

The Australian dollar traded at US78.69c at 11.36am in Sydney from US78.67c just before the report was released. The two-year bond yield was unchanged at 3.51 per cent.

Lending to companies fell 0.5 per cent in April, the third monthly decline since December, and rose 3.5 per cent from a year earlier, yesterday's report showed. By contrast, business borrowing climbed at an annual rate of 19.5 per cent in April last year.

"It's the retrenchment in the business sector that's prolonging the recession," Beacher said.

Stevens and his board are forecast to keep the overnight cash rate target at a 49-year low of 3 per cent on Tuesday, according to a Credit Suisse Group index based on swaps trading.

- BLOOMBERG