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Consumer sentiment has risen again in October despite the Reserve Bank of Australia’s (RBA) decision to raise rates and the governor’s recent suggestion that further rate hikes are imminent.
According to the Westpac - Melbourne Institute Index, consumer sentiment rose by 1.7 per cent in October from 119.3 in September to 121.4 in October.
Westpac's chief economist Bill Evans said in the last tightening cycle sentiment only started to respond adversely when the standard variable mortgage rate exceeded 6.55 per cent.
“The consecutive 0.25 per cent increases in November and December 2003, which pushed the standard variable rate from 6.55 per cent to 7.05 per cent, saw a cumulative fall in sentiment of 5.2 per cent while the next move in March 2005, which pushed the standard variable rate to 7.3 per cent, saw a 15.5 per cent collapse in sentiment,” Mr Evans said.
Of course, interest rates are not the only factor affecting sentiment.
Mr Evans said petrol prices, which have fallen by 7.5 per cent since the last survey, and the ongoing resilience of the labor market both helped keep consumer sentiment strong.
“The Reserve Bank board next meets on November 3. We expect the board to raise the overnight cash rate by 0.25 per cent and indicate in the associated statement that more rate hikes are likely. That said, we would not expect the next rate hike to damage sentiment although subsequent moves are likely to see sentiment turning down”, Mr Evans said.
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