By Jacob Greber
Nov. 12 (Bloomberg) -- Australian consumer confidence rose this month after the most aggressive central bank interest-rate cuts since 1991 and the government announced A$10.4 billion ($6.8 billion) in cash handouts to households.
The sentiment index rose 4.3 percent to 85.5 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Nov. 3 and Nov. 9 and released today in Sydney.
Reserve Bank of Australia Governor Glenn Stevens has cut borrowing costs by 2 percentage points since early September on concern slower global growth will erode Australia's economic expansion. The government has also pledged to give payments to the elderly, first-home buyers and families to stoke spending.
``This is a welcome result,'' said Bill Evans, chief economist at Westpac in Sydney. ``There has been great uncertainty as to how consumers would react to the barrage of news over the last month.
``Households have been unsettled by the ongoing disturbances in financial markets associated with the global credit crisis,'' he added. ``News of house price declines and the prospect of a global recession would also have weighed heavily on sentiment.''
The Australian dollar fell to 65.56 U.S. cents at 10:37 a.m. in Sydney from 65.63 cents just before the report was released. The two-year government bond yield declined 1 basis points to 3.54 percent. A basis point is 0.01 percentage point.
Pessimists
Today's consumer confidence index has its 10th straight reading of less than 100, showing pessimists outnumber optimists.
``Despite all the `good' news, the index is still 22.6 percent below the last year's level,'' Westpac's Evans said. That's the ``the longest period since the recession in 1990 and 1991 when pessimists have consistently outnumbered pessimists.''
A National Australia Bank Ltd. report yesterday showed business confidence plunged last month to a record low, suggesting the economy may fall into a recession for the first time since 1991.
Australia's S&P/ASX 200 Index of stocks has tumbled more than 38 percent this year as a squeeze on global credit markets worsens. The index was down 0.5 percent to 3940.8 at 10:40 a.m. in Sydney today.
Interest Rates
The Reserve Bank of Australia this week cut its 2008 economic-growth forecast to 1.5 percent from 2 percent and said it had been forced to make ``unusually large'' reductions in the overnight cash rate target in October and November because renewed global financial turmoil raised the risk the economy will stall.
The central bank also signaled it may reduce the rate further to avoid ``an unduly sharp weakening'' in demand.
Governor Stevens and his board cut borrowing costs by a quarter point on Sept. 2, 1 percentage point on Oct. 7 and three-quarters of a point last week.
Stevens will cut the benchmark rate by another half point to 4.75 percent on Dec. 2, according to 12 of 19 economists surveyed by Bloomberg News. Five expect a quarter-point reduction, one tipped a three-quarter point cut and one forecasts a 1 percentage point decline.
``Despite the mammoth rate cuts, confidence about economic conditions over the next 12 months actually fell by 1.8 percent,'' Evans said. ``It would appear the Reserve Bank has more work to do to restore households' confidence in the near term.''
Future rate reductions ``need to be deeper and rapid,'' and there is a ``decent chance the bank will decide to cut again by three-quarters of a point in December,'' he added.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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