Souring consumer mood in Australia may prompt RBA rate cut soonMarch 13, 2019
SYDNEY (Reuters) – Australian consumers have turned gloomy in a one-two punch to the economy already battling a steep property downturn and anemic wages growth, raising the risk of an interest rate cut as soon as next month.
FILE PHOTO: A row of newly built apartment blocks is seen in the suburb of Epping, Sydney, Australia February 1, 2019. Picture taken February 1, 2019. REUTERS/Tom Westbrook/File Photo
Slowing global growth and a trade war between the United States and China – Australia’s major export market – forced the country’s central bank last month to open the door to an easing. [nL3N20109I]
That policy U-turn by the Reserve Bank of Australia (RBA) was underscored by a survey released on Wednesday, which showed the Melbourne Institute and Westpac Bank (WBC.AX) index of consumer sentiment fell 4.8 percent in March, unwinding a 4.3 percent jump in February
The index, compiled from a survey of 1,200 people, was down 4 percent from a year earlier at 98.8, meaning pessimists now outnumbered optimists. This sharply contrasted with the ‘cautiously optimistic’ consumer mood through most of 2018.
The figures come just one day after a closely-watched measure of Australian business conditions slipped below the long-run average in February, dragged lower by falls in corporate profitability and sales. [nS9N1ZY019]
“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.
“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.”
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. <0#YIB:>
The Australian dollar AUD=D3 slipped 0.4 percent to $0.7049 as the consumer survey emboldened rate doves, drifting towards a recent two-month trough of $0.7030.
One reason for the dark mood in the report was a sharp slowdown in the A$1.9 trillion economy in the second-half of last year, in part due to the housing downturn. [nL3N20T0WK]
“We are mindful it may not take much additional weakness to trigger an easing from the RBA,” ANZ’s 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 2020.
The RBA is not alone in shifting away from its long-held policy stance. Central banks from the United States to Japan and China have turned more dovish since the start of this year in the face of cooling global growth and tepid…