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Falling consumer confidence won?t sway RBA on rates

Staff Reporter 2 minute read

Consumer confidence has been dented but further rate rises may be on the cards.

According to the Westpac-Melbourne Institute’s March survey, consumer confidence has hit a 15-year low.

The March survey reported a further 9.1 per cent drop in consumer confidence in the wake of the most recent RBA rate rise, which took the survey’s sentiment index to its lowest level since September 1993.

Recent ABS figures also revealed that consumer spending levelled in January. Retail sales figures for the month stood at $20.1 billion – the same as December last year.

But while confidence has slumped, unless April’s CPI figures reveal a cooling economy the RBA is still likely to take the hard line on interest rates.

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James Brooks, head of Origin, told Mortgage Business that while the latest consumer figures are encouraging, another rate rise could come sooner rather than later.

“Interest rates will almost certainly be lifted in May; following that, the economy might then be slow enough for the RBA to be comfortable,” said Mr Brooks.

Senior financial advisor with Citibank Shane Lees supports Mr Brook’s comments, noting that inflation is well above the RBA’s targeted band of two to three per cent and is unlikely to fall back within the target band based on last quarter’s figures.

“The quarter one 2008 CPI should show a large rise of around 0.9 per cent in underlying terms in the quarter,” said Mr Lees.

“A further increase of +25 basis points in May could set the platform for lower interest rates next year, but at this stage it’s too early to tell.”

Published: 17-03-08

Falling consumer confidence won?t sway RBA on rates
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