Australia’s consumer sentiment drops as rate-cut prospects dim

AUSTRALIA’S consumer confidence fell in March as households remain concerned about their finances and the near-term prospects for the economy, with little sign interest rates are about to begin coming down.

Sentiment declined 1.8 per cent to 84.4 points with pessimists heavily outweighing optimists given a reading of 100 is the dividing line, a Westpac Banking survey showed on Tuesday (Mar 26). The index has held below 100 since February 2022.

“Consumers are still deeply pessimistic and becoming more concerned about the economy’s near-term outlook,” said Matthew Hassan, a senior economist at Westpac. “Responses over the course of the survey week suggest sentiment made another sharp turnaround following the RBA (Reserve Bank of Australia) decision.”

Sentiment among those surveyed prior to the RBA’s decision to keep its benchmark rate at a 12-year high of 4.35 per cent came in much stronger – 94.9 – than recorded after the announcement – at 79.3, Hassan added.

“The implication is that while few would have been expecting rates to be cut, many consumers may have been hoping for a more positive message on inflation and the interest rate outlook,” Hassan said. “However, the RBA governor was still not ruling out the possibility of further rate rises following the March meeting.”

Most economists now believe the RBA is done hiking – and that the next move will see rates move down. The rate-setting board next meets on May 6 to 7 and is again widely expected to leave borrowing costs unchanged.

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Other key data points:

• Finances compared to a year ago sub-index declined 1.4 per cent and at 65.2 remains extremely weak.

• Economic outlook next 12 months fell 4.5 per cent.

• The time to buy a major household item sub-index slipped 2.9 per cent to 84.2.

• The time to buy a dwelling index rose 4.9 per cent to 77.8 – a 15-month high. BLOOMBERG