Sept. 2 (Bloomberg) -- Australia's home-building approvals fell in July, reinforcing central bank Governor Glenn Stevens' decision to cut borrowing costs for the first time in almost seven years today.

The number of permits granted to build or renovate houses and apartments dropped 2.3 percent to 12,620 from June, when they gained a revised 2.2 percent, the Bureau of Statistics said in Sydney today. The median estimate of 23 economists surveyed by Bloomberg News was for a 0.5 percent increase.

The slide in home approvals adds to evidence the nation's $1 trillion economy is cooling because of the highest borrowing costs in 12 years. Stevens cut the benchmark interest rate today by a quarter point to 7 percent, saying it's ``more likely'' that economic growth will slow ``over the period ahead.''

``Investor demand for housing is still very low,'' said Rob Henderson, chief markets economist at National Australia Bank Ltd. in Sydney. ``This is more evidence of a slowing economy.''

The Australian dollar fell to 84.89 U.S. cents at 3:47 p.m. in Sydney from 85.14 cents before the report was released. The two-year bond yield rose 1 basis point, or 0.01 percentage point, to 5.67 percent.

Stevens and his board last raised borrowing costs in March, adding to increases in February, November and August 2007, to cool inflation that was at 4.5 percent in the second quarter. The bank aims to keep consumer-price increases between 2 percent and 3 percent.

Mortgage Rates

Home buyers have also been paying more for homes after the nation's five biggest lenders increased mortgage rates by an average of 105 basis points since the start of this year amid rising credit costs. The central bank boosted its benchmark by 50 basis points in that time. Banks have announced the will pass on today's interest-rate cut to mortgage holders.

Building approvals dropped 3.7 percent in July from a year earlier.

Business confidence held in July at the lowest level since the 2001 terrorist attacks in the U.S., home-loan approvals fell in June to a four-year low and employers hired fewer workers, reports in the past month showed.

``The expectation that interest rates will be cut in coming months should provide some respite for the building sector,'' said Alex Joiner, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

Approvals to build private houses fell 3.4 percent to 8,366 in July. Approvals for apartments and renovations declined 2.3 percent to 3,914.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

Last Updated: September 2, 2008 02:07 EDT