Consumer sentiment has taken a steep tumble in March, according to the Westpac-Melbourne Institute Index of Consumer Sentiment.

The Index shows consumer sentiment fell by 5 per cent from 101.1 in February to 96.1 in March.

Westpac chief economist Bill Evans says the Index has now fallen below the level in October last year prior to the Reserve Bank’s two rate cuts in November and December, indicating the level of pessimists clearly outnumber optimists.

“With the two previous rate cuts in November and December being passed on in full by the banks it is reasonable to assume that many borrowers expected a further cut in the mortgage rate of 0.25 per cent. Instead, mortgage rates were actually increased in the following week with banks raising mortgage rates by an average of 0.10 per cent. It is likely that this reversal has impacted confidence,” he said.

The Index also indicated respondents are particularly concerned about economic conditions and employment.

“Relative to December, respondents were marginally more positive about international conditions but much more concerned about employment and interest rates while the concerns about economic conditions which increased sharply in December remained very high in March,” Evan said.

Saving plans continue to be very conservative with 34.6 per cent of respondents assessing bank deposits as the ‘wisest place for savings’. That is up from 30.1 per cent in December although below the record 37.8 per cent proportion in September 2011.

Evans has predicted that another rate cut is required from the Reserve Bank but is unlikely to happen until May or June.