Australia Rates on Hold as Confidence, Exports and Lending Drop
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By Jacob Greber
Dec. 9 (Bloomberg) -- Australian home-loan approvals fell in October, exports tumbled and consumer confidence slid this month, increasing central bank Governor Glenn Stevens’s scope to pause after a record run of interest-rate increases.
Consumer confidence fell 3.8 percent this week, home-loan approvals dropped 1.4 percent in October, and exports of coal and iron ore slumped from September, reports today showed.
Traders are betting the chances of Stevens increasing borrowing costs when his board next meets in February are less than 50 percent, after policy makers boosted the benchmark lending rate last week for an unprecedented third straight month. Still, Australia’s economy looks far better now than at the start of the year, after skirting the global recession, Stevens said yesterday.
“There are signs the three rate rises are taking some heat out of consumer sentiment, but confidence overall remains relatively high,” said Joshua Williamson, an economist at Citigroup Inc. in Sydney. Sentiment is “likely to come under more downward pressure as interest rates normalize.”
The Australian dollar traded at 90.48 U.S. cents at 1:18 p.m. in Sydney from 90.50 cents just before the trade and lending reports were released. The two-year government bond yield rose 2 basis points to 4.39 percent. A basis point is 0.01 percentage point.
Stevens and his board increased Australia’s benchmark lending rate on Dec. 1 by a quarter point to 3.75 percent, citing rising business confidence and a surge in house prices.
Rate Outlook
Investors are betting there is only a 44 percent chance of another quarter-point interest-rate increase in February, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:55 a.m. The central bank doesn’t meet in January.
“At the beginning of the year I would not have expected the economy to be looking as good as it does” now, Governor Stevens told economists said yesterday in Sydney. “I thought things would turn out rather worse than they have. But who’s complaining? Not me.”
The number of loans granted to build or buy houses and apartments dropped 1.4 percent to 63,865 from September, when they gained a revised 3.3 percent, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a 2 percent decline.
By contrast, approvals for the construction of homes surged 9.2 percent in October.
Government Grants
Approvals for home loans may slide further after Prime Minister Kevin Rudd’s government reduced grants to first-time buyers in October.
“Headwinds from rising mortgage rates will take some heat out of the market as affordability deteriorates, with first-home buyers more susceptible to, and deterred by, these rises, said Alex Joiner, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
This year’s interest-rate increases have added about A$150 ($136) to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after the government distributed more than A$20 billion in cash handouts to households.
An index of consumer confidence dropped 3.8 percent this month, led by waning sentiment among households with mortgages, a report by Westpac Banking Corp. showed today.
Demand for mortgages surged in the first half of the year amid record purchases from first-time buyers after Treasurer Wayne Swan tripled to A$21,000 a grant to buyers of new homes, and doubled to A$14,000 payments for those purchasing existing dwellings. House prices have gained 10 percent this year.
Trade Deficit
In May, Swan extended the increases through to the end of September, when they were partially reduced. The payments will be cut to their original level of A$7,000 at the end of this year.
A separate report today showed Australia’s trade deficit widened in October as exports of coal dropped 12 percent and iron ore slumped 8 percent.
The trade shortfall swelled to A$2.38 billion from a revised A$1.85 billion in September, the Bureau of Statistics said in Sydney. The median estimate in a Bloomberg News survey of 22 economists was for a A$1.81 billion deficit.
“In the near term, the trade deficit is likely to trend higher as imports continue to outstrip export growth,” said Felicity Emmett, an economist at RBS Group Australia Ltd. in Sydney. Next year “however, the trade balance should get a boost from higher contract prices for key commodities.”
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
Last Updated: December 8, 2009 21:57 EST
