Nov. 11 (Bloomberg) -- Australian consumer confidence fell for the first time since May after the central bank raised borrowing costs on Nov. 3 for a second straight month and signaled further “gradual” increases. The sentiment index dropped 2.5 percent to 118.3 points in November, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Nov. 2 and Nov. 8 and released today in Sydney. Weaker consumer confidence may give Reserve Bank Governor Glenn Stevens scope to keep the benchmark interest rate unchanged in December at 3.5 percent, after quarter percentage point increases in October and this month. A report tomorrow may show Australia’s unemployment rate rose in October to 5.8 percent from 5.7 percent, say analysts surveyed by Bloomberg. “We have probably now reached the point in the rate hike cycle when households will become increasingly sensitive to higher rates,” said Bill Evans, chief economist at Westpac Bank in Sydney. “However, confidence is still at remarkably high levels and the central bank is likely to take the opportunity to gradually remove more of the stimulus.” The Australian dollar traded at 93.01 U.S. cents at 10:32 a.m. in Sydney from 93.05 cents just before the report was released. The two-year government bond yield was unchanged at 4.71 percent. A basis point is 0.01 percentage point. Cash Handouts Consumer confidence surged 37 percent in the five months through October as Australia skirted the worst global recession since World War II, boosted by the central bank’s record 4.25 percentage points of interest-rate cuts between September 2008 and April, plus more than A$20 billion ($19 billion) in government cash handouts to households. The nation’s benchmark S&P/ASX 200 stock index has gained 28 percent this year. Stevens this month became the first central bank chief in the world to raise borrowing costs twice this year, citing a surge in consumer and business confidence as well as rising demand from China for exports such as iron ore and coal. Business confidence rose in October to near its highest level in almost six years, according to a National Australia Bank Ltd. survey published yesterday. Economic Growth The nation’s economy is expanding faster than the central bank forecast three months ago. The bank said last week gross domestic product will rise 1.75 percent this year and 3.25 percent in 2010. In August, it forecast expansions of 0.5 percent and 2.25 percent respectively. “A further gradual lessening of monetary stimulus is likely to be required over time,” the Reserve Bank said Nov. 6. Policy makers will increase the overnight cash rate target by a quarter point Dec. 1, according to 14 of 17 economists surveyed by Bloomberg. Investors are also betting there is a 76 percent chance Stevens will raise the rate by a quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10:30 a.m. All of the five components of the index fell in November, led by a 4 percent drop in the gauge of family finances over the next 12 months, today’s report said. Assessments of economic conditions over the next 12 months slipped 2.5 percent, and opinion on whether now is a good time to buy major household items declined 1.2 percent. “Retailers should still be encouraged given that opinions on ‘whether now is a good time to buy a major household item’ are still up 58 percent on a year ago,” Evans said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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