Consumer confidence bounced back on interest rates decision

Posted on 2010-07-14

 

CONSUMER sentiment has bounced back sharply after the Reserve Bank left interest rates unchanged for a second month in a row earlier in July.

The Westpac-Melbourne Institute consumer sentiment index surged 11.1 per cent in July, having tumbled 12.3 per cent since April.

Westpac chief economist Bill Evans said the latest reading restores the index to its highest level since April.

"Sentiment became increasingly undermined by disruptions in global financial markets, continuing rate hikes and confusion about the Government's proposed new mining tax," he said.

Aside form steady interest rates, the dispute over the mining tax has been "largely settled" and financial markets had also recovered somewhat.

In the past week the share market has rebounded 3.8 per cent and the dollar has rallied against the greenback.

"News on the labour market has also buoyed households with the unemployment rate falling to 5.1 per cent and 46,000 new jobs created in June," Mr Evans said.

The decision to leave interest rates unchanged saw the time-to-buy-a-dwelling index jump 15.6 per cent in July following a 7.3 per cent increase in June.

"Despite this, the index has only retraced about half of its slump since January and remains well below its historical average," Mr Evans said.

The assessment of family finances, relative to a year ago, rebounded 17.2 per cent in July having tumbled 17.7 per cent in June.

Expectations for household finances during the next year rose by a milder 7.3 per cent, having seen a more modest drop in June, while the whether-now-is-a-good-time-to-buy-major-household-items index rose 7.3 per cent, more than reversing the 5.6 per cent fall during the previous two months.

Still, the return of confidence levels to 11.4 per cent above the long-term average, adds to the case for a further interest rate rise, Mr Evans said.

The Reserve Bank board next meets on August 3, after official inflation readings are released on July 28.

"We expect it to be sufficiently high to trigger a rate hike at the August meeting," Mr Evans said.

Source: The Daily Telegraph

 

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