INTEREST rate cuts, lower petrol prices and a surging sharemarket
have spurred consumer sentiment to a 13-month high in February, says
Westpac, predicting more rate cuts are on the way.
The Westpac Melbourne Institute Index of Consumer Sentiment increased
by 8 per cent in February from 93.2 in January to 100.7 in February.
“This is a much stronger result than we had expected,” chief economist Bill Evans said.
“It represents the first time since February last year that we have
seen a majority (albeit minuscule) of optimists over pessimists,” he
said.
“This lift in confidence should allay any concerns that rate cuts, in
the current environment of record low rates, can be a negative for
confidence,” Mr Evans said.
“The idea that households would be unnerved by the implication that
authorities might be responding to a surprise deterioration in economic
circumstances seems to be strongly disputed by this result.”
After the federal budget last May, the consumer sentiment index
plummeted 6.8 per cent. The index this month climbed 1 per cent above
its reading in April just prior to the budget.
The price of petrol has fallen 21 per cent in the last two months,
while the share price index has lifted 9.7 per cent since the January
survey, Mr Evans said. He added that these two factors helped increase
confidence levels in respondents who held a mortgage.
The official interest rate cut at the Reserve Bank’s February board
meeting also boosted consumer confidence towards buying a house. The
index tracking views on ‘time to buy a dwelling’ jumped by 9.7 per cent
to reach its highest level since February 2014, Mr Evans said.
“Similarly, the index of house price expectations jumped by 6.9 per cent to reach its highest level since September 2014.”
Mr Evans said Westpac expects a second official rate cut in March,
although he recognised a respectable case for the RBA to pause for a
month or two to assess developments in the booming housing market.
“The most important point is that February is not the end of this
rate cut cycle with another cut extremely likely over the next three
months”, Mr Evans said.
This news story is reprinted from www.theaustralian.com.au
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