Australia: Consumer Sentiment drops to four year low – Westpac

Bill Evans, analyst at Westpac, notes that Australia’s Westpac-Melbourne Institute Index of Consumer Sentiment fell 5.5% to 92.8 in October from 98.2 in September.

Key Quotes

“This is the lowest level of the Index since July 2015. The Index has fallen by 8.4% since the Reserve Bank started cutting rates in June and is down by 8.6% over the last year.”

“The fall comes despite a further 25bp cash rate cut from the RBA at its October meeting – the third rate cut since June taking the cash rate to a new historical low of 0.75%.”

“This result will be of some concern to the monetary authorities. 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. This may be because, despite the rate cut, assessments for the economy overall plunged by 6% (the twelve month outlook) and 9.1% (the five year outlook).”

“The Reserve Bank Board next meets on November 5. Westpac expects the Board will decide to keep the cash rate on hold. Despite this unexpected plunge in the Index the Board is likely to take some time to assess the impact of the three rate cuts before deciding to move again.”