Rate cut results improve consumer confidence

Published on Wed, 11/07/2012, 03:33:59

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Consumers have regained some confidence in July with the Westpac Melbourne Institute Index of Consumer Sentiment seeing a 3.7 per cent lift from 95.6 in June to 99.1.

"Finally we have some evidence that the Reserve Bank's policy of cutting the official cash rate by 125bps between November last year and June this year is starting to gain more positive traction with households,” Bill Evans, Westpac chief economist, said.

“However, this result is far from convincing and should not be interpreted that we can expect confidence to steadily return to more normal levels over the months ahead.”

The Index is now 2 per cent above its level in October last year prior to the beginning of the rate cut cycle. However it is still 4.1 per cent below the reading in November last year when households responded positively to the first rate cut in November.

“Over the month, households were probably buoyed considerably by the result from the Greek elections and the positive reception to the latest European leaders’ summit, averting, at least for the time being, a new crisis in Europe,” Evans said.

“While the Reserve Bank did not cut interest rates further there was a strong 5.5% jump in the confidence of those respondents who hold a mortgage.”

As for the future, Westpac indicates the economy is in a ‘wait and see’ mind set with hopes that further rate cut will total 75bps.

“We believe that Australia needs lower rates and much can happen, particularly in the international economy, we are comfortable maintaining that view,” Evans said.


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