Australian Consumer Confidence Moves to Seven-Month High

August 12, 2010

Australian consumer confidence rose in August to its highest level since January, after the central bank kept borrowing costs unchanged for a third month amid signs the nation’s economic expansion isn’t stoking inflation.

The Central Bank kept the benchmark lending rate unchanged at 4.5 percent last week, after boosting borrowing costs six times between October and May.

“Clearly the most important factor was the decision by the Reserve Bank of Australia to keep its overnight cash rate steady” this month, said Bill Evans, chief economist at Westpac Bank in Sydney. The survey may also be “an early signal that the effects of the series of rate hikes on households may be starting to wane,” Evans said.

The Reserve Bank has boosted the benchmark rate by 1.5% from a half century low of 3 percent, citing concern about the nation’s housing market, which grew almost 20 percent in the 12 months through to 31st March. House price growth cooled to an annual pace of 18.4 percent in the second quarter.

Jobs Market

A rebound in Australia’s employment market, fueled by demand from China for raw materials such as coal and iron ore, also prompted policy makers to return borrowing costs to what they have described as “average” levels this year.

The weakest inflation in three years last quarter was a key reason the bank extended its interest rate pause this month, policy makers said last week. “By 2011, a more confident consumer, improving housing market and a lower unemployment rate should see a resumption of the tightening cycle,” Westpac’s Evans said. Some 20,000 new jobs were created in July.

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