The RBA’s decision to cut interest rates, along with the steady drop in petrol prices has pushed up consumer confidence by 7.5 percent on last month, according to the Westpac-Melbourne Institute Index of Consumer Sentiment.
Consumers appear to be responding positively to the cuts, with the Consumer Sentiment Index up 12.1 per cent in the last two months.
Westpac chief economist, Bill Evans believes that while lowering interest rates and petrol prices are raising the spirits of consumers over Christmas, he did not foresee such a significant jump.
“Despite the announcement of a further 1 percent cut in the Reserve Bank’s cash rate, and an 18.4 percent fall in petrol prices… it was not obvious that the Consumer Sentiment Index would have shown such a significant jump.”
According to Evans, households are finally responding positively to interest rates with the banks passing on the cuts to consumers.
“The good news on interest rates is finally getting some traction… with the banks now having passed on around 2.7 percent of the 3 percent in rate cuts over the last three months, households are responding.”
As a result, the confidence of mortgage holders surged by 11 percent in December.
Consumers also appear to be less wary about the economic future of Australia, with expectations for finances over the next 12 months improving by 5.3 percent, while the one year outlook for economic conditions has increased by 5.7 percent.
