Australian Consumer Confidence Fell Ahead of Rate Cut

By Jacob Greber

Oct. 8 (Bloomberg) -- Australian consumer confidence plunged this month by the most in more than two years, underscoring the need for yesterday's central-bank decision to reduce borrowing costs by the most since a recession in 1992.

The sentiment index tumbled 11 percent from September to 82 points, according to a Westpac Banking Corp. and Melbourne Institute survey released today in Sydney. It is the ninth straight reading of less than 100, showing pessimists outnumber optimists. The survey was taken before yesterday's rate cut.

Central bank Governor Glenn Stevens slashed the overnight cash rate target by 1 percentage point to 6 percent on signs the economy's expansion is slowing more than forecast. Consumers cut quarterly spending in the three months through June for the first time since 1993.

Since the ``stock market crash in 1987, we have had only nine months when the index has fallen by more than 11 percent,'' said Bill Evans, chief economist at Westpac in Sydney, adding that the drop was stoked by turbulence on financial markets.

Australia's S&P/ASX 200 Index of stocks has tumbled more than 30 percent this year as a squeeze on global credit markets worsens. The index was down 4.4 percent to 4417.5 at 10:38 p.m. in Sydney today.

The Australian dollar traded at 70.76 U.S. cents at 10:31 a.m. in Sydney from 20.77 cents just before the report was released. The two-year government bond yield fell 1 basis point, or 0.01 percentage point, to 4.21 percent.

Retail Sales

Westpac's survey of 1,200 consumers was conducted between Sept. 30 and Oct. 5.

Yesterday's cut to the benchmark lending rate was twice as much as economists forecast. ``An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,'' Stevens said yesterday.

Today's survey signals retail sales may slow.

``Of most significance and concern was the question of whether it is a good or bad time to buy a major household item,'' said Westpac's Evans. ``That component fell by an alarming 19.7 percent'' to the lowest level since the survey began in 1975.

``That is sending a chilling message to retailers as we approach the Christmas season.''

The central bank may add to yesterday's interest-rate reduction by another 100 basis points within the next six months, Evans said.

Stevens ``indicated in yesterday's statement that monetary conditions were still in the contractionary range,'' Evans said.

``We expect that unless there is an unexpectedly swift improvement in credit conditions, the Reserve Bank will aim to move financial conditions back to neutral within the next three to six months,'' he added.

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