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Australia's home-building approvals fell six times as much as economists forecast after the central bank raised borrowing costs to the highest in 12 years.

The number of permits granted to build or renovate houses and apartments dropped 5.7 percent in March from February, when they fell a revised 0.8 percent, the Bureau of Statistics said in Sydney today. The median estimate of 25 economists surveyed by Bloomberg News was for a 1 percent decline.

The fourth monthly decline in approvals supports the central bank's view that higher borrowing costs will cool the economy enough to bring inflation back within its target range of between 2 percent and 3 percent. Governor Glenn Stevens raised the benchmark rate in March, February, November and August, triggering declines in consumer confidence, retail spending and household borrowing.

“I think we're going to follow the U.S. in what occurred there in 2006,'' when the housing recession started, said Lev Mizikovsky, managing director of Tamawood Ltd., a Brisbane-based homebuilder. “Our estimate is that there is as much as 40 percent less funding available for home buyers.''

The Australian dollar fell to 94.12 U.S. cents at 4:41 p.m. in Sydney from 94.39 cents immediately before the report. The yield on the two-year government bond fell 1 basis point to 6.41 percent. A basis point is 0.01 percentage point.

Building approvals fell 0.7 percent in March from a year earlier.

`High Enough'

Today's report is “not a good sign,'' said Adam Carr, senior economist at UBS AG in Sydney. “The economy has clearly slowed a lot quicker than people expected. Interest rates are high enough'' and policy makers will probably start cutting rates in the first quarter of next year, he added.

Stevens and his board raised the benchmark rate by a quarter point to 7.25 percent on March 4 to cool the fastest inflation in almost 17 years, and left borrowing costs unchanged in April to gauge fallout from a global credit squeeze that has forced central banks around the world to cut borrowing costs.

The bank will probably leave the benchmark interest rate unchanged on May 6, according to 24 of 25 economists surveyed by Bloomberg News late last week.

The U.S. Federal Reserve lowered its benchmark rate by a quarter point to 2 percent yesterday, its seventh reduction since September.

Core Inflation

Australia's rate increases are exerting a “significant restraining influence'' on consumers and businesses and are likely to “reduce expansionary forces'' in the economy, the Reserve Bank said on April 15.

Core annual inflation accelerated to 4.4 percent in the first quarter from 3.8 percent in the previous three months, a report showed on April 23.

The central bank will lower its forecasts for economic growth and inflation when its quarterly policy statement is released on May 9, Stevens said at his half-yearly testimony to parliament's economics committee in Sydney on April 4.

Reports published in the last month suggest the $1 trillion economy is slowing. Sales of newly built homes fell in March for a second month, consumer confidence plunged in April to the lowest since 1993, companies remained pessimistic for a third month in March, and retail sales dropped in January and February as households spent less at restaurants and bars.

A decline in construction was among reasons gross domestic product growth slowed to 0.6 percent in the fourth quarter from 1.1 percent in the previous three months. First-quarter growth figures will be released on June 4.

Approvals to build private houses fell 5.8 percent to 8,611 in March, today's report showed.

Approvals for apartments and renovations advanced 0.3 percent to 3,753.

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