Australia business confidence falls in February despite interest rate relief: survey

[SYDNEY] A measure of Australian business confidence fell back into negative territory in February despite some interest rate relief from the central bank, a survey showed on Tuesday, highlighting challenges in the business sector.

The survey from National Australia Bank (NAB) showed its index of business conditions edged up 1 point to +4 in February, but remained below long-run averages.

The confidence index fell a sharp 6 points to -1, offsetting a gain in the previous month.

“The lift in confidence seen (in January) was not sustained into February and is now well below average again,” said Alan Oster, chief economist at NAB. “This was despite the improvement seen in Q4 GDP data and the RBA’s first rate cut, which suggests that businesses continue to be cautious about the outlook.”

The Reserve Bank of Australia last month cut rates by a quarter-point to 4.1 per cent, having held them steady for over a year. However, policymakers still warned that prospects of further easing are not guaranteed.

Swaps imply a scant chance that the RBA will follow up with another cut in April, but a move in May is about 80 per cent priced in. Rates are seen reaching 3.5 per cent by the end of the year.

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The survey’s sub-index for sales edged up 1 point to +4, while profitability also rose 1 point to -1. The employment index fell 1 point to +4, while forward orders were steady at -3.

The NAB survey showed there are still some price pressures, with purchase costs up 1.5 per cent in quarterly term, accelerating from 1.1 per cent previously. Retail price inflation was unchanged at a quarterly pace of 1 per cent.

“Lingering cost pressures continue to put pressure on business profits, with profitability conditions remaining well below the long-run average. This is likely flowing through to weaker conditions and confidence measures,” said Oster from NAB. REUTERS