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ISCOVER
Staff Reporter
The Reserve Bank’s spate of interest rate cuts earlier this year is starting to pay dividends, with consumer confidence hitting a new high.
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The Westpac-Melbourne Institute Index of Consumer Sentiment increased by 5.2 per cent recently, rising from 99.2 in October to 104.3 in November, representing a move from slightly negative to positive sentiment.
Westpac's chief economist Bill Evans said the result was "strong”.
“The index has reached its highest level since April 2011. After a long, 16-month period when the index held below 100 for 14 of those months, we are finally starting to see that the Reserve Bank's 150 basis points of interest rate cuts are having an impact,” he said.
“However, to put this result into perspective, the index is still only 0.9 per cent above its level of November last year, following the first 25 basis point cut from the Reserve Bank.
“In effect, the subsequent 125 basis points of rate cuts have only really now been successful in holding the index at that level which we reached in November last year.
The survey was conducted from November 5 to November 11, so it largely captured the impact on confidence of the Reserve Bank's decision to hold rates steady at its board meeting on November 6, despite extensive media speculation that it might cut rates again.
“It appears that the ‘disappointment’ effect of the Bank's decision has been quite muted. The more likely explanation for this strong uplift is that households are becoming more comfortable with the global outlook and are finally responding to the series of rate cuts,” Mr Evans said.
“The major negative factor, which is likely to have unnerved households is the extensive coverage around the vulnerabilities of Australia's mining boom. We saw some evidence of this in the state results. Confidence fell sharply by 5.2 per cent in Western Australia, the dominant resources state. Sentiment also fell heavily, by 8.7 per cent, in South Australia where ongoing disappointment around the cancellation of the Olympic Dam project may be a factor.
“In contrast to this, confidence surged 14.2 per cent in New South Wales where mining activity is less significant and, arguably, prospects are brightest for the property market.
“Last month, we noted that confidence around whether now is a good time to purchase a dwelling had jumped by 9.6 per cent to its highest level since September 2009,” Mr Evans said.
