Rate cut fails to improve sentiment

By Ericka Pingol | 12 Jul 2019

The Reserve Bank of Australia’s (RBA) recent cut failed to improve sentiment, with consumer confidence falling to a two-year low.

The sentiment dropped 4.1% to 96.5 in July, the lowest reading since August 2017, according to the Westpac-Melbourne Institute survey. The sub-index tracking expectations also experienced the biggest fall with a 12.3% decline.

“The fall in sentiment this month is troubling as it comes against what should have been a supportive backdrop. The main driver continues to be deepening concerns about the outlook for the Australian economy and prospects for family finances,” said Westpac's Senior Economist Matthew Hassan.

RBA reduced the rates to a record-low 1% to kick-start economic growth, and the government passed its tax package bringing relief to households.  However, consumers have remained pessimistic.

The consumer survey, based on 1,200 interviews, found that rate cuts are equated with a declining economy.

Hassan said the weak response to the rate cut and tax relief stemmed from the fact that both were already anticipated.

The survey also found stabilising markets in capital cities failed to impress consumers.

“Deteriorating expectations for the economy outweighed any near-term support from the prospect of lower interest rates and tax relief. The sub-index tracking consumers’ expectations for ‘finances, next 12 months’ also recorded a sharp 8% fall, moving back into net pessimistic territory for the first time since 2017,” Hassan said.


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