Did the banks just crush consumer confidence?

Finance-iconFine print in a new survey of consumer confidence suggests the Reserve Bank may just have crushed consumer confidence, with worse to come once consumers factor in mortgage interest rate rises.

The Westpac–Melbourne Institute Index of Consumer Sentiment issued yesterday says consumer confidence is up 4.2 per cent. There’s also good news in the form of increased consumer optimism about their family finances and the future of the Australian economy.

1.8 of householders believe “now is a good time to buy a major household item.”

But down in the lower reaches of the announcement is worse news, in the form of analysis of responses gathered in the three days after the Reserve Bank’s announcement to keep interest rates at current levels.

Westpac Chief Economist Bill Evans ‘fessed up and said those responses were “4.2% lower for responses received in the last three days of the survey, following the disappointment in the decision by the Reserve Bank, compared to those received in the first two days when households were confidently led to believe that a third rate cut could be expected.”

There’s no detail about how many people were surveyed in the first two days compared to those in the last three of the research period. One analysis could be that even with the lower scores on the last three days, so many consumers were optimistic that the overall 4.2 per cent rise is an even better result. A darker view would assume that the bulk of the respondents to the research participated on the first two days, and the result is a false positive.

Either way, the headline rate of 4.2 per cent increase in confidence was probably dented severely by Banks’ decision to increase mortgage interest rates.

As Evans said, “The banks did in fact raise rates by 6–10 basis points but these actions occurred too late to have any impact on the survey. From the perspective of a mortgage borrower their position over the week changed from expecting mortgage relief of up to 25 basis points to actually incurring an increase of 6–10 basis points.”

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