Confidence back from 7 month low

Australian consumer confidence rebounded this month from a seven-month low on expectations that damage to the economy from flooding in the nation's northeast will be short-lived.

The sentiment index climbed 1.9 per cent to 106.6 from a month ago, according to a Westpac Banking Corp and Melbourne Institute survey of 1200 consumers taken from January 31 to February 6 and released yesterday.

After floods inundated much of Queensland last month, Cyclone Yasi last week cut a destructive path through banana- and sugar-producing areas in the region.

"We can best describe the result in February as a modest rebound from the strong reaction to the floods in January," Bill Evans, the bank's chief economist, said.

"This rebound may have been stronger had it not been for Cyclone Yasi, which dominated the news during the week of the February survey."

Reserve Bank of Australia Governor Glenn Stevens left the overnight cash rate target at 4.75 per cent last week, after seven increases from October 2009 to November 2010. Higher borrowing costs helped slow third-quarter growth and savings have risen, even as energy and mining investments keep unemployment near 5 per cent.

"A recent lower-than-expected inflation outcome, coupled with uncertainty about the economic outlook, will allow the bank to maintain its pause," said Evans, who does not expect an increase in rates until the September quarter.

RBA board member and Fairfax chairman Roger Corbett in a Bloomberg News interview yesterday said Australian consumers had become "a lot more conservative" since the global financial crisis.

"One could argue that is a good thing because if that is maintained in a reasonably sensible and constrained way we don't see rampant demand running away."

- BLOOMBERG

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