Why Business Borrowing activity is "well above it's post-GFC average"

There's a strong link between interest rate movements and borrowing activity in the housing sector, but a much weaker link in the business sector, according to the Reserve Bank of Australia's (RBA) latest Statement on Monetary Policy.

That explains why business credit growth “remains well above its post-GFC average”, despite this period of higher rates.

“While businesses’ demand for credit is influenced by the level of interest rates (including because of their effect on current and expected future economic conditions), other factors are also at play,” the RBA said.

“For example, borrowing to fund mergers and acquisitions contributed to strong growth in business credit in the 2006–2008 tightening phase. More recently, favourable farming conditions and higher land values have contributed to strong growth in lending to the agriculture industry. Business credit growth is also affected by the supply of credit: lenders may be less willing to provide loans during easing phases as they coincide with economic slowdowns (and vice versa).”

The RBA also noted that businesses' ability to borrow “has been supported by relatively low levels of leverage and above-average cash balances”.

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