Australian consumer confidence slides to near 15-year low

SYDNEY: Australian consumer confidence plunged to a near 15-year low in March, figures showed on Wednesday, which economists said could signal the end of rising interest rates.

The Westpac-Melbourne Institute consumer sentiment index fell 9.1 percent in March to 88.6 points, its lowest reading since September 1993, after successive rate hikes and stock market turmoil spooked consumers.

Westpac chief economist Bill Evans described the fall as "extraordinarily large" even though it followed higher borrowing costs and a prolonged period of equity market turmoil triggered by the global credit crunch.

"The decline over the last three months, 23.9 points or 21.2 percent, is the sharpest three-month decline since the index was first measured in January 1975," he said.

Evans said it probably meant the Reserve Bank had tightened rates for the last time in the current cycle, after lifting them 12 times since May 2002, most recently by 0.25 points this month to a 12-year high of 7.25 percent.

The central bank has been trying to curb inflation with consumer confidence until recent months staying stubbornly high despite the series of rate hikes. "We do not expect that the Bank will raise rates again in the cycle," Evans said.

The economist said the slide in consumer confidence could not be attributed only to increases in borrowing costs.

"The current credit crisis, which is pushing mortgage and other retail lending rates even higher than the rises associated with the Reserve Bank, has also precipitated the biggest fall (23.3 percent) in the share market since the recession in 1990-91."

Evans said the Reserve Bank would welcome the downturn in confidence. "However, inflation will remain uncomfortably high and generous tax cuts later this year are likely to significantly boost households.

"Interest rates are now likely to stay around these relatively high levels until the Reserve Bank feels confident that inflation pressures have eased significantly." That was not expected to occur before the second half of 2009, he said.