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Australia's business confidence dropped to a 14-month low in December, adding to expectations the central bank won't raise interest rates next week.
National Australia Bank's index of confidence fell 2 points to 4, according to a survey of about 400 companies. A reading above zero means more respondents expect business will improve rather than worsen.
The Reserve Bank's board, which next meets on February 6, raised borrowing costs three times last year to stem inflation. Higher rates have curbed company earnings and may put a brake on growth as Australia enters a 16th straight year of expansion.
"The most likely rate outcome is for the Reserve Bank to be on hold for a considerable time period," said Alan Oster, chief economist at National Australia Bank. "Domestic demand will continue to weaken as the full impact of the 2006 rate rises pass through and the drought significantly detracts from rural output."
Australia's dollar fell to US77.24c from US77.26c before the report was released. The yield on the 10-year bond fell 1 basis point to 5.9 per cent.
Reflecting the decline in confidence, an index measuring actual sales, hiring and profits in December fell from November. The business conditions index dropped 3 points to 11, a four-month low.
The Reserve Bank of Australia raised the overnight cash rate target by a quarter percentage point in May, August and November last year, taking it to a six-year-high of 6.25 per cent.
The central bank's rate-setting board will announce its next move next Wednesday.
All 25 economists surveyed by Bloomberg News last week expect interest rates will remain unchanged in February.
- BLOOMBERG
