The rate of growth in personal borrowing continues to accelerate, according to the latest monthly credit statistics produced by the Central Bank.
The latest data shows that private sector credit increased by €5.6 billion during October. Excluding lending to IFSC companies, this is the largest monthly increase since March 2004.
An expansion in residential mortgages accounted for €1.9 billion of the €5.8 billion increase. Short-term loans - for periods of up to one year - accounted for a further €1.3 billion while term/revolving loans increased by €1.6 billion. The remainder was composed of overdrafts, repurchase agreements and "other mortgages".
Annual growth in total personal credit has accelerated from 28.6 per cent in September to 29.4 per cent in October. An increase in short-term, non-mortgage loans was the stronger driver of growth, with non-mortgage credit rising by 29.9 per cent.
But demand for housing finance remains strong with residential mortgages growing by 26 per cent year-on-year in October, compared with annual growth of 25.8 per cent in September. Demand for private sector credit is considerably above the euro-zone average of 8.8 per cent.
The data comes amid heightened expectations that the European Central Bank (ECB) will raise interest rates when its governing council meets today. Last week ECB president Jean-Claude Trichet signalled his concern about the continued strength of the euro zone's money supply and its implications for inflation. According to the latest credit statistics, 12-month money market interest rates have risen by 23 basis points in October, reflecting expectations of a quarter-point rate increase today.
Stockbroking firm Bloxhams has predicted that lending growth would fall back as rates increased. "With the ECB due to raise interest rates for the first time in five years, the growth in credit demand may start to fall back in the coming months," said Bloxham economist Alan McQuaid.
But he said that credit growth would remain strong in the foreseeable future. "Our base forecast is that rates will rise by at least a half percentage point and possibly as much as a full percentage point if, and that's a big 'if', the euro-zone economy continues to recover."
