Australia Consumer Confidence Rises as Rate Cut Spurs Housing

Australian consumer confidence advanced after the central bank resumed reductions in the benchmark interest rate, as respondents indicated a willingness to enter the property market, a private survey showed.

The sentiment index for October rose 1 percent to 99.2, a Westpac Banking Corp. (WBC) and Melbourne Institute survey taken Oct. 1-7 of 1,200 adults showed today in Sydney. The index remained below 100, which indicates pessimists outnumber optimists, for an eighth straight month, the longest stretch since the global financial crisis.

“The most encouraging result from today’s survey came from the index tracking views on ‘time to buy a dwelling’ which surged” to the highest level since September 2009, Bill Evans, Westpac’s chief economist, said in a statement. “The response of the housing market to the recent rate cuts will be very important to watch.”

Reserve Bank of Australia Deputy Governor Philip Lowe said this week that policy makers are alert to the potential for a surge in house prices in response to lower rates. The central bank reduced the benchmark borrowing cost by a quarter percentage point to 3.25 percent on Oct. 2, adding to 125 points of reductions from November to June, as Europe’s sovereign-debt crisis slows global growth.

Traders are pricing in a 79 percent chance policy makers will lower borrowing costs by a quarter-percentage point to 3 percent at their meeting next month, swaps data compiled by Bloomberg show.

“Global uncertainty, softening domestic growth, a weak labor market and dormant inflation” are setting the scene for another move, said Evans, who predicts an RBA cut in November.

The RBA last week ended a three-month pause in rate reductions to revive demand outside of a resource boom that may crest at a lower level than previously expected.

“Low interest rates do have the potential to increase demand for people to buy houses, or to trade up houses and borrow,” Lowe said in response to questions yesterday. “We’re not seeing any signs of that yet, but if we did I think that would raise concerns.”

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

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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