Australian Retail Sales Increase as Rate Cuts Spur Spending

Australian retail sales rose four times faster than economists forecast in February, led by gains in household goods and department stores as interest-rate reductions encouraged spending. The local dollar advanced.

Sales climbed 1.3 percent to A$21.95 billion ($23 billion) from a month earlier, when they rose a revised 1.2 percent, the Bureau of Statistics said in Sydney today. That beat the median forecast in a Bloomberg News survey of 22 economists for a 0.3 percent gain and was the biggest back-to-back gain in almost four years.

The data validate Reserve Bank of Australia Governor Glenn Stevens’s decision to hold rates this year after six reductions -- totaling 1.75 percentage points -- from November 2011 to December to help buttress the economy. Policy makers are trying to stimulate industries outside mining, where investment is predicted to plateau this year, and offset the drag on the economy from a high currency.

“Monetary policy is working,” Paul Bloxham, chief Australia economist at HSBC Holdings Plc in Sydney and a former RBA official, said in a Bloomberg Television interview today. “It’s starting to support the consumer in Australia.”

Spending on household goods, at department stores and on other retailing all gained 1.6 percent, today’s report showed. No categories declined, it showed.

The local dollar rose to $1.0478 at 12:02 p.m. in Sydney from $1.0460 before the release. The three-year government bond yield climbed 5 basis points after the release to 2.90 percent.

Cuts Working

The central bank lowered borrowing costs by a total of 50 basis points late in 2011 and a further 125 basis points in May, June, October and December 2012 to help stimulate the economy. It said this week there’s evidence its rate reductions are beginning to take effect.

“There are a number of indications that the substantial easing of monetary policy during late 2011 and 2012 is having an expansionary effect on the economy,” Stevens said after the April 2 decision to leave rates unchanged at 3 percent. “Further such effects can be expected to emerge over time.”

Woolworths Ltd., Australia’s largest retailer, said Feb. 28 that first-half earnings rose 19 percent as cheaper imports and cost cuts helped wring more profit from sales. Australian consumer confidence advanced last month to the highest level since December 2010, a private report showed March 13.

“Consumers are getting their groove back,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “Rising confidence and wealth are encouraging households to spend more freely.”