Reserve Bank statistics show banks increased their limits for credit card customers by a record NZ$98 million to NZ$17.675 billion in August, perhaps anticipating a spending spree ahead of the October 1 increase in the GST rate to 15% from 12.5%. This was the biggest increase in credit card limits in over two years.
But customers were reluctant to use the the extra credit offered, increasing their outstanding balances by just NZ$26 million to NZ$5.308 billion as an already heavily indebted household sector remains reluctant to increase spending despite the threat of rising prices.
Outstanding balances have been flat to falling for over two years.
There remains two weeks to run before the October 1 increase in prices, but retailers report relatively slow activity for bigger ticket items, apart from in Christchurch where many households are having to replace crockery and big screen televisions broken in the September 4 earthquake.
Reserve Bank figures show household debt as a percentage of disposable income remained elevated at 154% in the second quarter of 2010, albeit down from a peak of 158.8% in the third quarter of 2008 just before the Global Financial Crisis hit.
Household debt remains well above its levels in 2002 of around 110% of disposable income, just before a surge in foreign borrowing helped double house prices in the space of five years.
The Reserve Bank noted the household sectors preference for debt repayment rather than spending on consumer goods in its dramatic reduction in its growth outlook and its forecast interest rate track in its September Monetary Policy Statement.
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