By Aimee Chanthadavong

The Reserve Banks’ latest decision to reduce the cash rate by another 0.25 per cent earlier this month has helped lift consumer sentiment for August.

The Westpac Melbourne Institute Index of Consumer rose to 105.7 in August, a 3.5 per cent difference from the reported 102.1 in July.

Westpac chief economist Bill Evans said this is the highest the index has reached since March 2013.

“A number of important forces were operating over the month to impact Sentiment. Most important were the decision by the Reserve Bank to cut its overnight cash rate by 0.25 per cent and the full pass through of this cut to mortgage rates; the announcement of the September 7 election date; the government's Economic Statement which revealed a further deterioration in the fiscal position; and the consolidation of the Australian dollar at around 15 per cent below its recent peaks back in April,” he said.

The interest rate cut boosted confidence around family finances. "Family finances compared to a year ago" surged by 13 per cent while "Family finances over the next 12 months" was up by 9.7 per cent. "Economic conditions over the next 12 months" rose by 5.5 per cent although "Economic conditions over the next 5 years" fell by 0.4 per cent.

Evans also noted the consolidation of the fall in the Australian dollar may have also been playing a positive role for sentiment

“Despite the rate cut, confidence in metropolitan areas improved by only 1 per cent over the full week whereas confidence in non-metropolitan areas was up by 11 per cent,” he said.

“This latter response would have been a combination of relief for borrowers and a confidence boost for rural communities with the improved export outlook resulting from the more competitive Australian dollar.”

Despite this, the sentiment remains below post-GFC levels.

According to Australian National Retailers Association (ANRA) CEO Margy Osmond, the consumer psyche remains heavily anchored.

“Consumers continue to tighten the pursue strings in the discretionary spend sector…[but] today’s figure indicate a promising turnaround  in how people perceive their current situation. This month sentiment around family finances surged 9.7 per cent for the year ahead and when asked about their finances compared to a year ago, the results surged 13 per cent,” she said.

“Retailers are hoping the turnaround will be sustained in the coming months and consumers will begin to feel more confortable to return to the shops post-election and into the busy Christmas period.”