/www.bloomberg.com/ By Victoria Batchelor
Sydney, Oct. 16 (Bloomberg) -- Australian consumer confidence slumped in October to its lowest in a year, dragged down by a slump in global stocks, the threat of war in Iraq and the worst drought in 100 years.
The confidence index, compiled from a survey of 1,200 people, fell 5.7 percent from September to a reading of 102.3, according to Westpac Banking Corp. and Melbourne Institute. A reading above 100 indicates more consumers are optimistic than pessimistic.
The central bank will see the slump in confidence as another reason to keep interest rates unchanged this year, economists say. That's because of the risk consumer spending, which has helped the economy grow around 4 percent this year, will slow. Harvey Norman Holdings Ltd., the nation's largest furniture retailer, said yesterday that sales slowed in September.
``Such a surprisingly weak read on consumer sentiment will be an additional reason to keep interest rates on hold,'' Bill Evans, chief economist at Westpac, said in a statement.
The index is at its lowest level since the October 2001 survey following the Sept. 11 terrorist attacks.
Westpac sent a statement 90 minutes after the survey's initial release saying the confidence survey was conducted prior to Saturday night's bombing in Bali, which killed 181 people, many of them Australians. Previously, Westpac reported the fall in confidence was partly a reaction to the events in Bali.
Central Bank
The Reserve Bank of Australia increased its benchmark overnight cash target rate by a half percentage point to 4.75 percent in two moves in May and June. The Australian economy expanded 3.8 percent in the second quarter from a year earlier, almost two times the pace of U.S. economic growth.
The central bank has left rates unchanged since because global economic growth is slowing. The bank's board next meets on Nov. 4 and 20 of 22 economists expect the bank to keep rates unchanged.
``It would be hard for the Reserve Bank to justify raising rates, given the global events,'' John Skippen, chief financial officer at Harvey Norman.
``Consumer confidence seems to vary,'' he said, adding sales growth at the company's stores had slowed in September.
Bond Yields Rise
The yield on the 6.5 percent bond maturing May 2013 rose 19 basis points from yesterday, to trade at 5.81 percent at 12:30 p.m., Sydney time. The Australian dollar was at 54.70 U.S. cents at 12:30 p.m., up from 54.68 U.S. cents just before the report was released. The benchmark S&P/ASX stock index rose 8.4 points, or 0.3 percent, to 3003.30, the fourth straight monthly gain.
``Everyone is focusing on the rally in U.S. equities,'' and should the recovery in shares continue, that may help consumer sentiment rebound from this fall, said Annette Beacher, an economist at Salomon Smith Barney/Citibank Ltd.
``Consumer confidence collapsed after Sept. 11, yet retail spending still held up, and confidence had a hiccup when equity markets started to fall, yet spending has held up,'' Beacher said. ``I find it hard to believe people will stop spending money on summer clothes or air conditioners, for example.''
Retail sales rose 0.2 percent in August, the 10th gain in 11 months, according to the latest government figures.
An index in the Westpac survey measuring whether it was a good time to buy a household item fell 3.3 percent.
The Westpac survey's measure of the level of family wealth versus a year ago declined 5.7 percent. The measure of confidence in economic conditions over the next 12 months dropped 6.7 percent.