Thu, Mar 14, 2019 - Page 10 News List

Souring consumer mood might prompt RBA rate cut

Reuters, SYDNEY

A for sale sign stands in front of a row of houses in the Sydney suburb of Carlingford on Feb. 1.

Photo: Reuters

Australian consumers have turned gloomy in a one-two punch to the economy already battling a steep property downturn and anemic wage growth, raising the risk of an interest-rate cut as soon as next month.

Slowing global growth and a trade spat between the US and China — Australia’s major export market — last month forced the country’s central bank to open the door to an easing.

That policy U-turn by the Reserve Bank of Australia (RBA) was underscored by a survey released yesterday, which showed that the Melbourne Institute and Westpac Bank index of consumer sentiment fell 4.8 percent this month, unwinding a 4.3 percent jump last month.

The index, compiled from a survey of 1,200 people, was down 4 percent from a year earlier at 98.8, meaning pessimists outnumbered optimists.

This sharply contrasted with the “cautiously optimistic” consumer mood through most of last year.

The figures came just one day after a closely watched measure of Australian business conditions slipped below the long-run average last month, dragged lower by falls in corporate profitability and sales.

“The consumer and business confidence surveys confirm the weakening in the Australian economy lately and point to subdued conditions looking ahead,” said Diana Mousina, senior economist at AMP Capital Investors Ltd.

“The continued poor data flow in Australia means that the next RBA meeting in April is ‘live,’ which means that the odds of no change versus a rate cut look fairly even, despite the RBA appearing neutral in its commentary,” Mousina said.

Despite the RBA’s doggedly neutral stance, domestic money markets are fully priced for a 25 basis point reduction in the official cash rate by August.

The Australian dollar slipped 0.4 percent to US$0.7049 as the consumer survey emboldened rate doves, drifting toward a two-month trough of US$0.7030.

One reason for the dark mood in the report was a sharp slowdown in the A$1.9 trillion (US$1.34 trillion) economy in the second half of last year, due in part to a housing downturn.

“We are mindful it may not take much additional weakness to trigger an easing from the RBA,” Australia and New Zealand Banking Group’s (ANZ) head of Australian economics David Plank said in a note, in which he removed a hike from the RBA’s long-term rate outlook.

“Should it look as if the unemployment rate is trending higher, we think the RBA will act quite quickly,” he said.

ANZ sees the possibility of a policy easing as early as May, although its base case scenario is for rates to stay on hold through next year.

The RBA is not alone in shifting away from its long-held policy stance.

Central banks from the US to Japan and China have turned more dovish since the start of this year in the face of cooling global growth and tepid inflation.

In the consumer sentiment report, respondents appeared to be reacting to data showing that the economy slowed sharply in the December quarter of last year, which many in the local media referred to as a “per capita recession.”

Fourth-quarter GDP expanded at a below-trend 2.3 percent annual pace, underlining heightening pressure on the economy.

“The survey detail indicates that this had a significant negative impact on confidence,” Westpac Banking Corp senior economist Matthew Hassan said. “Responses over the survey week show a marked drop-off after the national accounts update.”

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