Australia’s Consumer Sentiment Surges After Third RBA Rate Cut

Australia’s consumer confidence surged in August after the Reserve Bank cut interest rates for the third time this year and signaled further easing is likely.

Sentiment advanced by 5.7% to 98.5 points, a 3-1/2 year high, a Westpac Banking Corp. survey showed Tuesday. While pessimists persist in outweighing optimists, with a dividing line of 100, the gap is narrowing.

It has been 42 months since Australian consumers last registered a sentiment reading above 100 – the second-longest period of continuous pessimism since the survey began in 1974, behind only the early 1990s recession, said Matthew Hassan, Westpac’s head of Australian macro forecasting.

The data suggest “this long run of consumer pessimism may finally be coming to an end,” Hassan said, adding that all components of the index posted gains. “Consumers appear much less anxious about their finances.”

The RBA has lowered borrowing costs by 75 basis points since the start of the year for a cash rate of 3.6%. Governor Michele Bullock last week signaled a “couple more” cuts will be required to achieve the bank’s latest forecasts.

Economists see another rate reduction in November and a final one early next year, taking the terminal rate to 3.1%.

The prospect of further easing “looks to have reinforced consumer expectations that mortgage interest rates are headed lower, giving a broad-based boost to sentiment,” Hassan said. “Consumer attitudes towards major purchases are starting to turn positive.”

In Australia, where consumption accounts for about half of the economy, households’ attitudes toward purchases are closely monitored by policymakers.

Source: Bloomberg Europe