-Alan Oster, NAB Chief Economist
Australian businesses remained gloomy over the outlook in January amid the recent sluggish economic performance. The National Australia Bank Business Confidence Index, which is based on a survey of more than 400 companies, climbed to 3 in the reported month, up from 2 in December. The measure of business conditions remained at 2, after a revision of December's reading from 4 to 2. The survey was conducted before the Reserve Bank of Australia announced the interest rate cut to a new record low of 2.25%. The move is seen boosting business confidence, as well as supporting demand in the economy. NAB now expects the central bank to slash interest rates again in May, and sees 30% chance of a further rate cut. The RBA said in a statement that it expects the Australian economy to be running with a degree of spare capacity for some time. A separate report showed, Australian house prices increased at a solid pace in the final quarter of 2014, reflecting the effect the ultra-low interest rates have on the property market. Fears are mounting that the central bank's decision to cut rates further may inflate a housing bubble. The House Price Index (HPI), which measures the change in the selling prices of homes in Australia's eight state capitals, advanced 1.9% in the three months through December after climbing a revised 1.4% in the preceding quarter, according to the Australian Bureau of Statistics. The index rose 6.8% in the fourth quarter compared with the same period in 2013.
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