Australia Retail Sales Flat in November, Rate Cut Looms


A flood of Australian data onMonday showed a disappointingly flat month for retail sales, lackluster labor demand and tame inflation, a combination thatonly added to expectations for a cut in interest rates thisweek.

Data from the Australian Bureau of Statistics showed retailsales were unchanged in October at A$21.6 billion ($22.5billion) as consumers cut spending on household goods. Analystshad looked for a rise of 0.4 percent and the soft result knockedthe local dollar down a quarter of a cent.

The Reserve Bank of Australia (RBA) holds its monthly policymeeting on Tuesday and investors are betting heavily it will cutthe cash rate by a quarter point to 3 percent, so matching therecord low reached during the global financial crisis.

"The market has moved pretty quickly over the past week topretty much fully discount a move tomorrow, and these dataaren't really going to change any perceptions about that," saidMichael Turner, a strategist at RBC Capital Markets.

A clear majority of analysts in a Reuters poll expect theRBA to pull the trigger, in large part to help offset acoming cool-down in the country's red-hot mining sector.

Interbank futures put the chance of an easing onTuesday at three-in-four, while swap rates put it at 88 percent. Markets are also leaning toward a further cut to 2.75percent some time next year.

The RBA has already cut rates by 100 basis points since May,citing a slower global economy, a softer labour market at homeand lower prices for some of Australia's major resource exports.

The pullback in prices has led some miners to rein in theirmore ambitious spending plans such that the RBA now believes theboom in resource investment will peak earlier than previouslyexpected, around the middle of next year.

As a result, policy makers are trying to stimulate othersectors of the economy, and particularly home building, to fillany hole left by the eventual pullback in mining spending.

So far, lower rates have had a limited impact on cautiousconsumers who prefer saving and paying down debt.

That has been tough for the A$260 billion retail sectorwhich accounts for around 18 percent of Australia's economicoutput and is the second-biggest employer after the healthindustry, with 10.5 percent of all jobs.

It is also one reason analysts expect unemployment to creephigher from the current 5.4 percent.

A survey of job advertisements from Australia and NewZealand Banking Group showed a drop of 2.9 percent inOctober, the eighth month of falls and an ill omen for hiring.

"Further easing is necessary to assist the economy in itstransition towards a lower dependence on mining investmentgrowth," said ANZ's head of Australian economics, Ivan Colhoun.

"We continue to expect a 25 basis points cut at the RBABoard meeting tomorrow and for the Bank to maintain a strongeasing bias in 2013."

Analysts see plenty of room to ease monetary policy givenAustralia's Labor government is tightening its purse stringswhile domestic inflationary pressures remain benign.

A private gauge of inflation out on Monday showed a 0.1percent dip in November thanks to falls in prices for fruit andvegetables, petrol and holiday travel.

The TD Securities-Melbourne Institute's measure of annualconsumer price inflation stood at 2.5 percent, right in themiddle of the RBA's long-term target band of 2 to 3 percent.