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The Reserve Bank of Australia's recent interest rate rise has hit business confidence in Australia, according to a long-running survey.

NAB's Business Survey showed business confidence fell to -9 in November, down from -3 in October, taking it to the lowest levels outside of the Covid crisis.

NAB says the fall correlates with the recent interest rate hike at the RBA, with movements in confidence over the past year broadly correlating with movements in the official interest rate and rate expectations.

Confidence & Conditions (Net Balance, SA), image: NAB.

"Over the past two months, the further increase in rates and expectations of further increases has seen confidence step lower – and has been particularly evident in the goods sectors and consumer sectors," says NAB.

The findings suggest the RBA's recent decision to raise interest rates will have the desired effect of cooling economic activity and thus constraining inflationary forces.

"A further increase in rates saw confidence in the key consumer-facing sectors – retail and recreation & personal services – fall further into negative territory," says NAB.

Although confidence fell sharply, business conditions were more robust, falling 4pts to +9 index points, which ensures they remain above the long-run average.

Trading conditions fell 6pts to +13 index points and profitability was also down 6pts (unrounded) to +6 index points, while employment remained at +8 index points.

Economists will be keen to know whether the fall in business confidence leads business conditions lower over the coming months. Indeed, business conditions are still elevated, "reflecting just how strong they were to begin with," says NAB Chief Economist Alan Oster.

"We will be closely watching to see if the weakness in confidence is sustained and whether a trend emerges in conditions, but for now it points to ongoing soft growth in Q4," he adds.

Should the drop in confidence reported in the NAB survey be reflected in a broader economic slowdown, the RBA might well have delivered its final hike.

The RBA will nevertheless continue to resist any expectations for imminent rate cuts, as the NAB survey reveals inflationary pressures remain a concern.

"Price pressures for both inputs and outputs remain elevated and actually nudged higher in the month. The hope is that with activity slowing the easing in price pressures becomes more evident in early 2024," says Oster.

"The NAB business survey for November shows a tick up in price pressures for firms. Financial markets continue to price a small chance of another RBA rate hike in early 2024 and an almost non‑existent easing cycle," says Carol Kong, a strategist at Commonwealth Bank.