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Consumer confidence surges

10 September 2009 Reporter

Consumer confidence has hit its highest level since July 2007 – a positive for the economy but a further indication that the RBA may raise rates sooner rather than later.

The Westpac–Melbourne Institute Consumer Sentiment Index surged by 5.2 per cent in

September to reach 119.3, a figure that means optimists now far outweigh pessimists.

Interestingly the confidence of Australians who currently have a mortgage rose 4.4 per cent, indicating resilience to the rate outlook.

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Westpac's chief economist Bill Evans said in the last long drawn out rate hike cycle confidence was steady until variable mortgage rates hit 7 per cent.

“From that point confidence fell by an average of around 9 per cent whenever rates were increased,” he said.

“With variable mortgage rates currently 5.8 per cent their extremely low level is providing a basic support to sentiment. That is unlikely to change until mortgage rates get up to around 6–6.5 per cent at which point rate changes will start to deter households.”

While the rally in confidence strengthens the case for a rate hike, Mr Evans said the RBA would more than likely defer any decision for another month at least.

Consumer confidence surges
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