Australia's Consumer Sentiment Gains for Second Month

By Jacob Greber

Sept. 10 (Bloomberg) -- Australian consumer confidence rose for a second month in September after the central bank cut borrowing costs for the first time in seven years.

The sentiment index climbed 7 percent from August to 92.2 points, according to a Westpac Banking Corp. and Melbourne Institute survey released today in Sydney. It is the eighth straight reading of less than 100, showing pessimists outnumber optimists.

Central bank Governor Glenn Stevens cut the overnight cash rate target from a 12-year high by a quarter point to 7 percent on Sept. 2 and signaled this week he may reduce it again when the slowing economy starts to cool inflation. Consumer sentiment was also boosted by an 8 percent drop in the cost of gasoline in August, Westpac said.

The increase ``is a direct response to the decision by the Reserve Bank to cut their overnight cash rate and the swift response by the banks to reduce their variable mortgage rates by a similar amount,'' said Bill Evans, chief economist at Westpac in Sydney.

The Australian dollar bought 80.02 U.S. cents at 10:32 a.m. in Sydney from 80.05 cents just before the report was released. The two-year government bond yield was unchanged at 5.51 percent.

Westpac's survey of 1,200 consumers was conducted between Sept. 1 and Sept. 7.

Inflation Outlook

Stevens said on Sept. 8 the Reserve Bank of Australia is seeking a ``gradual fall'' in the inflation rate, which rose to 4.5 percent in the second quarter. He aims to keep inflation between 2 percent and 3 percent on average.

``In the near term, the question will be do we hold here or go down a bit more'' on interest rates,'' Stevens said.

Westpac's Evans said that while consumer sentiment has recovered sharply in the past two months, it ``is still at very poor levels. Rates will need to come down further after October to provide some meaningful relief to financial conditions.''

Still, ``any more evidence of a resurgent consumer will soon see the Reserve Bank backing off any further rate cuts until there is convincing evidence of easing inflation pressures,'' Evans added.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net