Australia Consumer Confidence Declines 5.3% on Central Bank Rate Increase

Australian consumer confidence declined in November to a five-month low after the central bank resumed raising interest rates, sending mortgage payments higher.

The sentiment index fell 5.3 percent to 110.7 this month, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted Nov. 1-7 and released today in Sydney.

Today’s report comes after Reserve Bank of Australia Governor Glenn Stevens and his board boosted the benchmark interest rate to 4.75 percent on Nov. 2, ending a five-month pause as a mining investment boom bolsters the economy. A gauge of family finances dropped 10.2 percent, the biggest decline among five components in the sentiment index, Westpac said.

“The mining boom will be positive for the economy but not necessarily helpful to households’ own financial position,” said Bill Evans, Westpac’s chief economist. “The general mood” of consumers and businesses heading into the holiday sales season “is not particularly upbeat,” he said.

Evans expects the RBA to hold the benchmark rate unchanged until the second quarter of next year.

Commonwealth Bank of Australia, the nation’s biggest home lender, said after last week’s rate decision it will raise its standard mortgage interest rate by almost double the central bank’s increase.

‘Disturbing’

Evans said the decline in confidence about a family’s finances from a year earlier was “disturbing.” He also said responses to questions about spending plans over the next two months “underscore the cautious consumer mood.”

Still, a “modest” decline in consumer views about whether now is a good time to buy a major household item is “certainly welcome,” Evans said.

“We expect that the soaring Australian dollar is supporting this optimism and does provide retailers with reason for some optimism despite the overall fall in the index,” he said.

The RBA said in its quarterly monetary policy statement last week that economic growth will strengthen to 3.75 percent by the end of 2011, climbing to 4 percent by the end of 2012. Consumer prices will rise 2.75 percent through June 2012; previously, the RBA had estimated inflation of 3.25 percent.

Australia’s unemployment rate, at 5.1 percent in September, is about half the level of joblessness in the U.S. The level probably dropped to 5 percent last month, according to economists surveyed by Bloomberg News ahead of a Nov. 11 government report on employment.

To contact the reporter for this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

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