Australia cenbank sees demand cooling as sales fall

By Wayne Cole

SYDNEY (Reuters) - Australia's top central banker said on Friday there were signs that domestic demand was cooling in a way that would help restrain inflation, suggesting he thought interest rates had risen enough for now.

There was timely support for that case in the latest figures on retail sales, which showed falls of 0.1 percent in both February and January. That was far weaker than expected as rising borrowing costs and slumping consumer confidence curbed spending on household goods and restaurant meals.

In his semi-annual testimony on the economy before lawmakers, Reserve Bank of Australia (RBA) Governor Glenn Stevens cautioned that the outlook was an uncertain one given that the economy had surprised with its strength in the past.

"We do think, however, that demand growth in Australia is now in the process of moderating," said Stevens. "Our assessment is that a change in trend is occurring, and we are hearing that from businesses we talk to."

Analysts took this as the clearest sign yet that the central bank felt it had raised interest rates enough, following hikes in February and March which took the cash rate to a 12-year high of 7.25 percent.

"Stevens confirmed a wait-and-watch stance for the RBA consistent with a likely peak in cash rates at 7.25 percent," concluded Su-Lin Ong, a senior economist at RBC Capital Markets.

The Australian dollar slipped a third of a U.S. cent in the wake of the comments and the soft retail sales report.

Bill futures actually dipped slightly since investors had already priced out pretty much any chance of a further tightening given the deepening global credit squeeze and a dimming outlook for world growth. Indeed, some had hoped Stevens would open the door to a rate cut.