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The RBA’s September rate cut would appear to have reminded Australian borrowers that things aren’t quite as bad as they feared with a leap in consumer confidence recorded yesterday.
The Westpac-Melbourne Institute Index of Consumer Sentiment rose by seven per cent this month –the first indication of consumer sentiment since the RBA’s September 2nd rate cut.
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Bill Evans, Westpac chief economist, said yesterday that the rise was a “direct response” to the RBA’s rate reduction combined with the swift move from the banks to pass on the cut to borrowers.
The index showed sentiment for households with mortgages in particular rose by 10.8 per cent.
Mark Hewitt, AFG’s general manager of sales and operations, said the improvement in consumer sentiment was good news but he doesn’t expect a big increase in borrowing activity just yet.
“The early indication is that people are a lot more positive and there seem to be more borrowers out there looking at property,” he said. “But one rate cut in isolation is not going to have a massive impact on activity.”
Mr Hewitt said the rate cut should ensure AFG’s volumes return to July levels, off the back of the $1.9 billion low recorded in August.
“We’re expecting September sales to reach around the $2.3 billion mark,” he said.
Despite cautious optimism, Mr Hewitt said consumers would need a lot more sustained good news for a significant rebound in confidence.
“There is always a spike in consumer confidence following a rate cut,” he said, “and it’s too early to say that confidence is now on a direct route up.”
He said “at least a couple more 25 basis point rate cuts” would be necessary to see a marked improvement in borrowing activity.
Published: 11-09-08
