Rate cuts bump up consumer sentiment

Consumer sentiment has jumped 6.3 percent this month, thanks largely to the Reserve Bank’s decision to cut interest rates.

The Westpac-Melbourne Institute Index of Consumer Sentiment rose from 97.2 index points in October, to 103.4 in November.

According to Westpac Chief Economist Bill Evans, this result met largely with expectations, and is “clearly driven by the decision by the Reserve Bank to cut the official cash rate by 0.25 percent with, in most cases, the major lending institutions passing the cut on in full to mortgage borrowers.”

The Index now indicates that optimists slightly outnumber pessimists for the first time since June this year, and is at the highest reading since May.

Confidence amongst those consumers with a mortgage soared 13.9 percent; people who own their house mortgage-free boosted their confidence by 6 percent; while tenants’ confidence fell 6.8 percent.

Evans said Westpac has taken a particular interest in how respondents assess their finances over the next 12 months, which fell from 98.1 to 97.3.

In contrast, the sub-indexes tracking views on family finances compared to a year ago rose by 7.1 percent; economic conditions over the next 12 months surged 18.8 percent; economic conditions over the next five years increased 7.4 percent; and whether now is a good time to buy a major household item rose by 1.8 percent.

“Not surprisingly, sentiment towards housing improved by a solid 6.5 percent, while sentiment towards purchasing a motor vehicle was down by 3 percent,” Evans added.

Westpac expects the RBA will hold rates at the current level until February next year, until it’s had time to assess the impact of the first move.

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