Australian Business Confidence Falls in February Despite Rate Cut

Australian business confidence declined in February, slipping into negative territory despite recent interest rate relief from the Reserve Bank of Australia (RBA), according to a National Australia Bank (NAB) survey.

The NAB index of business conditions edged up by 1 point to +4, though it remains below long-term averages. Meanwhile, business confidence dropped sharply by 6 points to -1, erasing gains from January.

Alan Oster, NAB's chief economist, noted that the decline in confidence came despite improvements in Q4 GDP data and the RBA's first rate cut in over a year. "Businesses remain cautious about the outlook," Oster said.

The RBA reduced interest rates by 25 basis points to 4.1% last month, but policymakers warned that further cuts are not guaranteed. Market swaps indicate a low probability of another rate reduction in April, though there is an 80% chance of a cut in May, with rates expected to reach 3.5% by year-end.

The survey also highlighted continued economic challenges. Sales rose by 1 point to +4, while profitability improved slightly by 1 point to -1. However, employment weakened, falling by 1 point to +4, and forward orders remained at -3.

Persistent cost pressures continue to weigh on business performance. Purchase costs rose by 1.5% on a quarterly basis, accelerating from the previous 1.1%, while retail price inflation remained steady at 1% per quarter. Oster warned that rising costs are squeezing profitability, leading to weaker overall conditions and confidence.

Despite rate cuts, Australian businesses remain wary amid ongoing economic uncertainty, suggesting that confidence may take longer to recover.