Monday, February 1, 2010

Australian Business Confidence Falls to Six-Month Low (Update1)

By Jacob Greber

Feb. 2 (Bloomberg) -- Australian business confidence fell in December to the lowest level in six months, a sign the central bank’s record round of interest-rate increases is damping sentiment.

The confidence index dropped 11 points to 8, according to a National Australia Bank Ltd. survey of more than 400 companies released in Sydney today. A figure above zero shows optimists outnumber pessimists.

The drop in business optimism may give central bank Governor Glenn Stevens scope to pause in coming months after a series of interest-rate gains that all 20 economists surveyed by Bloomberg expect will be continued today. Retailers and transport companies reported the biggest declines in confidence, today’s report showed.

The survey “suggests that Reserve Bank actions and the high Australian dollar are starting to moderate expectations,” said Alan Oster, chief economist at National Australia in Melbourne. The currency has gained more than 40 percent in the past year, eroding earnings for exporters.

While Oster said the Reserve Bank of Australia will increase its benchmark lending rate by a quarter percentage point today to 4 percent, adding to similar moves in October, November and December, “the bank appears to be close to pausing.”

“The central bank is clearly keen to rest for a while to assess the impact of what it has already done,” he said.

Rate Bets

The Australian dollar traded at 89.16 U.S. cents at 11:33 a.m. in Sydney from 89.10 cents just before the report was released. The two-year government bond yield was unchanged at 4.24 percent.

Traders are betting there is a 72 percent chance of a move at 2:30 p.m. in Sydney today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:29 a.m.

Stevens was the only policy maker in the world to raise borrowing costs three times in 2009, after he slashed the overnight cash rate target to a half-century low of 3 percent in April to cushion the economy against the global recession.

The rate increases followed signs economic growth will strengthen this year, helped by the biggest jobs boom in more than three years and the largest increase in annual house prices since 2007.

‘Still Strong’

“Of course it bears repeating that current levels of confidence remain strong -- and are indeed still above long-term average rates,” Oster said.

Oster said the survey has prompted National Australia Bank to increase its forecast for economic growth this year to 3 percent from a previous prediction of 2.75 percent. The economy will expand 3.75 percent in 2011, he said.

National Australia’s business conditions gauge, a measure of hiring, sales and profits, was unchanged at 10 points.

Today’s December results are based on a survey conducted between Jan. 11 and Jan. 15. National Australia Bank normally conducts its survey in the final week of every month excluding December. The January report is due to be published Feb. 16.

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