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Australian consumers are feeling their gloomiest in more than four years, signaling that the Reserve Bank’s three recent interest-rate cuts are having the reverse intended effect.
Consumer confidence dropped 5.5% to 92.8 in October, with pessimists again outweighing optimists in the monthly Westpac Banking Corp. survey. The index sunk to its lowest level since July 2015 and is down 8.4% since the central bank started cutting rates in June.
“This result will be of some concern to the monetary authorities,” said Westpac Chief Economist Bill Evans. “Typically, an interest-rate cut boosts confidence, particularly around consumers’ expectations for and assessments of their own finances. In this survey, these components of the index fell by 3.7% and 4.9%respectively.”
The survey was undertaken last week, when Governor Philip Lowe reduced the cash rate to a record-low 0.75% to stoke economic growth amid rising global risks and a stubborn jobless rate at home. So far, the RBA’s easing cycle has mainly served to reawaken a dormant housing market, even as it’s been coupled with government tax rebates to households.
Consumers may also be unnerved by the government’s failure to respond to RBA calls for further fiscal stimulus, as well as the largest four banks only passing through part of the latest rate cut, said Evans. Their realization that sluggish wages growth could be around for some time may have also played a part, he said.
“Consumers are looking behind the reason for the rate cut and, arguably, the absolute level of rates, and getting nervous,” said Evans.
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