Australia Consumer Confidence Rises to 5-Month High on Rate Cuts

Australia Consumer Confidence Rises to 5-Month High on Rate Cuts
Pedestrians cross a road during the morning rush hour in Sydney, Australia. Photographer: Ian Waldie/Bloomberg

Australian consumer confidence rose to a five-month high as households responded to the central bank’s 1.25 percentage points of interest-rate cuts since November, a private survey showed.

The sentiment index for July advanced 3.7 percent to 99.1, the highest level since February, a Westpac Banking Corp. and Melbourne Institute survey taken July 2-8 of 1,200 consumers showed today in Sydney.

“Finally we have some evidence that the Reserve Bank’s policy of cutting the official cash rate by 125 basis points between November last year and June this year is starting to gain more positive traction with households,” Bill Evans, Westpac’s chief economist, said in a statement. “However, this result is far from convincing and should not be interpreted that we can expect confidence to steadily return to more normal levels over the months ahead.”

The survey responses, last week’s greater-than-expected increase in retail sales and a record month of building approvals add to the case for Reserve Bank of Australia Governor Glenn Stevens to extend a rate pause at next month’s meeting. The RBA cut the benchmark by 50 basis points late last year and a total of 75 basis points in May and June as weakness in Europe and China threaten the global outlook.Policy makers left borrowing costs unchanged at 3.5 percent this month.

Mortgage Holders

“While the Reserve Bank did not cut interest rates further, there was a strong 5.5 percent jump in the confidence of those respondents who hold a mortgage,” Evans said.

Traders are pricing in a 74 percent chance the central bank will lower borrowing costs by a quarter-percentage point to 3.25 percent at its meeting next month, swaps data compiled by Bloomberg show.

“Although there are tentative signs of improvement emerging in some interest-rate sensitive parts of the economy, these have yet to show a convincing recovery and remain vulnerable to renewed weakness,” Evans said. “Our call that the next cut will come in August could prove to be too early. However, because we believe that Australia needs lower rates and much can happen, particularly in the international economy, we are comfortable maintaining that view.”

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