Consumer confidence flat after rate cut, shares fall 1.8%

Confidence has risen slightly during May after the Reserve Bank slashed the official interest rate by 50 points, according to the latest figures from the Westpac-Melbourne Institute Consumer Sentiment Index.

The Index rose by 0.8% to 95.3 points, up from 94.5 in April.

Westpac chief economist Bill Evans said he had hoped there would be a larger increase, given the RBA cut was larger than expected. But he says other factors have offset this good news.

“Firstly there might have been a degree of disappointment among households that the standard variable mortgage rate was reduced by only an average of 0.37%.”

“Secondly, increasingly disturbing news around Europe and specifically Greece is likely to have unnerved households.”

Evans points out the confidence level is still 2% under the position it was in last October, even when the official cash rate was higher – and consumers didn’t like the federal budget, either.

“We asked a supplementary question in the survey: What impact do you expect the federal budget to have on your family finances over the next 12 months?” Evans says.

“The results were disappointing, with only 9.9% of respondents indicating that the budget would improve family finances while 36% indicated the budget would worsen family finances.”

Three of the five components of the index increased, with the component covering family finances up 17% on a year ago. The index for finances within the next five years was up 1.8%, while the index covering views on finances for the next 12 months was up 1.3%.

This article first appeared on SmartCompany.