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Consumer sentiment falls as rates concerns rise

Consumer confidence fell by five percent in March, as Australians worry about rising interest rates and falling employment levels.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell from 101.1 in February to 96.1 in March, to a level lower than before the Reserve Bank’s (RBA) last two rate cuts in November and December.

“With the Index below the 100 level pessimists clearly outnumber optimists,” Westpac chief economist Bill Evans said.

“Sensitivity to interest rates has clearly been one factor responsible for this weak print… 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 percent. Instead, mortgage rates were actually increased in the following week with banks raising mortgage rates by an average of 0.10 percent. It is likely that this reversal has impacted confidence,” he added.

Additionally, the survey found a large proportion of consumers are worried about economic conditions (56.4 percent) and employment (16.6 percent).

“These proportions are near historical highs. The measures of favourability for both economic conditions and employment were near the lows registered in the 2008/09 and 2001/02 periods,” Evans said.

“Recent data releases showing weak growth in GDP in the December quarter and a rise in the unemployment rate for February are likely to have exacerbated respondents’ concerns,” he added.

Despite weak GDP growth, rising unemployment and a soft housing market Evans doesn’t expect the RBA to reduce rates at its next board meeting on 3 April.

“We assess that the case has already been made for lower rates in Australia but expect that, at this stage, the Board is not convinced,” he said.

“More time will be required before we see another rate cut, our best expectation is in May or June.”

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Rachel White

Rachel White

Rachel White is an intern at Dynamic Business and is currently studying a Bachelor of Media (communications and journalism) at UNSW. She enjoys photography, reading and just hanging out with friends and family.

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