The RBA’s decision to cut rates by 0.25 per cent has helped boost consumer sentiment by 6.3 per cent in November.
The Westpac Melbourne Institute Index of consumer sentiment increased from 97.2 in October to 103.4 in November.
Westpac chief economist, Bill Evans, said the rates decision is apparent from with the index now indicating that optimists slightly outnumber pessimists for the first time since June 2011 and this is the highest reading for the Index since May 2011. However it is still 6.7 per cent below its level last year. That is even after the Index had fallen by 5.3 per cent in response to the rate hike in November last year.
“The pattern of the Index's moves follows closely the pattern we saw in 2008 when the Bank cut rates for the first time in the 2008/2009 rate cut cycle. When the Bank desisted from threatening higher rates, Sentiment improved by 9.1 per cent and when the rate cut was delivered it was boosted by a further 7 per cent,” he said.
“In September this year Sentiment increased by 8.1 per cent when the Bank ceased threatening to raise rates to be followed by today's increase of 6.3 per cent when the first rate cut was delivered.
“However the level of the Index in the current period is around 12 per cent higher than in September 2008, broadly reflecting relatively less concern about global risks and job security.”
Westpac has predicted that the next move by the Reserve Bank will not happen until February next year when the Bank has had time to assess the impact of the first move; more information is available about the global economy; and further evidence is available on inflation.