Aussies losing confidence

Interest rate cuts prompting greater pessimism

AUSTRALIANS are more pessimistic about the economy than any time in the past four years, with confidence dropping since the Reserve Bank started cutting interest rates in June.

The Westpac-Melbourne Institute consumer sentiment index found a significant drop in confidence this year, as interest rates were slashed to record lows.

“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,” Westpac chief economist Bill Evans (right) said yesterday.

“Consumers are looking behind the reason for the rate cut and, arguably, the absolute level of rates and getting nervous.”

The index dropped from 98.2 in September to 92.8 in October, the lowest level since July 2015.

The 2015 plunge was sparked when a sudden 30 per cent plunge in the Chinese stock market concerned Australians, before it rebounded the following month. While the biggest falls in October were around consumer views on the economy, family finances remained the clear weak spot. “Spending on discretionary and big-ticket durable items has been particularly weak over the last year,” Mr Evans said.

NAB senior economist Gareth Spence said the recent personal income tax cuts appeared to have failed to boost household spending, as retail sales growth remains soft.

“We think the recent rate cuts will have an impact, but the effects will take longer and be more variable, which will make them less apparent,” Mr Spence said.

Commonwealth Bank senior economist Belinda Allan said the consecutive rate cuts were sending negative signals to consumers “We have been saying for a long time now that extra fiscal support in the way of further personal income tax cuts and more infrastructure spending would be more beneficial than taking the cash rate lower,” she said.

Treasurer Josh Frydenberg has attacked the big four banks for not passing on full interest rate cuts, which he says they have no reason to hold on to.

But Labor’s treasurer spokesman Jim Chalmers says Australians are concerned the government has no answers for the stagnating economy.

The Reserve Bank has cut rates to a record low of 0.75 per cent in a bid to drive unemployment further down and push wages up.