Disappointing consumer confidence strengthens case for rate cut

by Julia Corderoy17 Apr 2015
Consumer sentiment has recorded a “disappointing result” ahead of the release of the Commonwealth Budget, according to Westpac’s chief economist.

The Westpac Melbourne Institute Index of Consumer Sentiment fell by 3.2% in April from 99.5 in March to 96.2 in April.  

“This is a disappointing result. We would have preferred to have seen some upward momentum in the index going into the important Commonwealth Budget that will be released next month,” Westpac’s Chief Economist, Bill Evans said.

“With the Index entering the Budget period well below the key 100 level and with downward momentum we must recognise that confidence is again looking vulnerable heading into the Budget announcement next month. Indeed, recognition that the next Budget is imminent may have contributed to this month’s weakening in confidence.”

The Index’s unemployment expectations surged 8.5%, to its highest level since December. 

“That increase curtailed a promising run of three consecutive months when the index had fallen and represents the highest level since December,” Evans said.

“Job insecurity has been a prime explanation for the cautious consumer and this type of reading gives us no confidence that households are becoming more comfortable with their feelings of security around the jobs market.”

Confidence around the housing market also deteriorated. The index tracking assessment of ‘time to buy a dwelling’ fell by 10% to its second lowest level since November 2010.

“That response is probably being driven by recent price increases in Sydney and Melbourne with respondents assessing that prices have moved too quickly. Certainly, the responses for NSW (down 21.5%) and Victoria (down 8.3%) point to that sentiment,” Evans said.

“Despite weakening confidence around the purchase decision, prospects for house prices lifted further. The Westpac Melbourne Institute Index of House Price Expectations increased by 2.8%.”

According to Evans, the drop in consumer confidence will strengthen the case for more rate relief. Westpac is “extremely confident” that the Reserve Bank will cut the cash rate by a further 25 basis points, to 2%, when it meets on 5 May 2015.


  • by Ian 17/04/2015 1:32:00 PM

    Is it just possible that the average person on the street is thinking "Gee we must be in trouble the RBA's cutting rates again". In other words the reduction in interest rates itself is contributing to the lower consumer confidence. Perhaps it's time to stop the reductions and keep some in reserve just in case the global economy tanks.