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Confidence remains low despite rate cuts!

By Cathy Pieroz

The succession of rate cuts this year has failed to lift consumer sentiment, new research has revealed.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 4.1 per cent in December, from 104.3 in November to 100 in December.

Westpac’s chief economist Bill Evans said the result was “very surprising”, especially given that the Reserve Bank has cut 125 basis points from the official cash rate since the beginning of the year.

“When we saw the 5.2 per cent increase in the Index in November, which came despite the Reserve Bank’s surprise by holding rates steady, it appeared that sentiment was finally starting to respond to the accumulated series of rate cuts since November last year,” he said.

“With that in mind, it was therefore reasonable to expect that the Index would respond quite positively to the rate cut the Reserve Bank delivered last week.

“Instead, the Index fell back to near its October level and is now 3.2 per cent below its November 2011 level. Households with a mortgage did respond positively to the rate cut with their confidence rising by 4.4 per cent.

“However, other respondents were quite downbeat. Confidence of those folks who are renting properties fell 9.1 per cent while for those who wholly own their property, confidence was down 10.9 per cent.”

According to Mr Evans, respondents are still worried about the stability of the Australian economy and its global counterparts, with the outlook for economic conditions falling by up to nine per cent.


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