Home owners feeling confident following cash rate cut

Posted: 13 May 2016 11:24 am

thumbs upThe Reserve Bank’s cash rate cut appears to have played well with consumers, delivering a boost to confidence.

The Westpac Melbourne Institute Index of Consumer Sentiment has jumped to its highest level since January 2014 following the Federal Budget and the Reserve Bank’s decision to trim the official cash rate to 1.75%. Westpac chief economist Bill Evans said that while the Budget seems to have been well received, the primary driver of the confidence boost appears to have been the rate cut.

Evans said consumer sentiment often saw a significant rise following an RBA rate cut, with the last four cuts boosting the index an average of 6.6%.

“Supporting this view has been a stunning 15% increase in the confidence of those respondents in the survey who currently have a mortgage,” Evans said.

The RBA cut also seems to have improved the outlook of those looking to buy a home. Evans said the proportion of consumers who believe now is a good time to buy a dwelling improved by 12.1% in May, although it was still 6.4% below its level a year ago. At the same time, consumers showed a more subdued view toward house price expectations. The outlook for house prices fell 2.6%, and is now 15.9% below its level a year ago.

The Federal Budget received the best reaction of any since 2010, though Evans said consumers’ view of the Budget was not a “glowing response”. He said the number of consumers who expect their family finances to deteriorate as a result of the Budget outnumber those who expect them to improve.

While the rate cut may have been effective in bolstering consumer confidence, Evans said Westpac was forecasting the Reserve Bank to cut the official cash rate again before the end of the year.

“It seems likely that it will have to deliver that cut in August after it has had time to further analyse the inflation trends in the June quarter and the March quarter national accounts,” he said.

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