Interest rate rises paying off - RBA

THE local financial system is in good shape with lending to businesses and individuals coming off the boil, RBA data shows.

Rate rises paying off - RBA

THE Australian financial system is in good shape with lending to businesses and individuals coming off the boil but showing no signs of a credit clampdown, Reserve Bank comments and data showed yesterday.

RBA governor Glenn Stevens said the domestic financial system was weathering the global credit tightening well and minutes from the RBA's April board meeting showed "risky borrowers" only were facing clampdowns in credit standards.

The RBA board repeated the Australian economy was finally cooling from the heady 2007 pace that caused inflation to flare but said it still needed to see the moderation in spending continue before it could be sure official rates had peaked.

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Its comments suggested it was increasingly confident the slowing would occur and tame inflation over two or three years.

The RBA said rate rises by it and commercial banks were slowing spending and "provided this continued, members expected inflation to decline over time, though there were significant risks in both directions".

The board also said International Monetary Fund forecasts for world economic growth implied a "relatively mild" global downturn.

Good growth was still expected for the emerging economies, in particular China, albeit at a slower pace, the RBA said.

China will today release its first-quarter gross domestic product data.

ABN Amro economist Kieran Davies said the RBA was confident local banks could weather the turmoil and didn't see them facing the funding pressures that rocked US and UK banks.

Mr Davies said data yesterday on total loans granted in February allayed fears of any credit rationing occurring, in which banks turn down even quality borrowers due to pressure on their lending books from rising business loans.

"There are some anecdotes of credit rationing for some companies but the overall impact so far of the credit crunch is that everyone – whether a company or household – is paying more for loans. Generally you can still get a loan, you're just paying a lot more," Mr Davies said.

The ABS data confirmed rate increases were deterring investors and consumers from borrowing, with new business loans up 8 per cent, down from the 46 per cent rise seen in January.

Total new lending – for housing, personal, commercial and lease finance – fell by 8.3 per cent.