Australian households ‘deeply pessimistic’ despite confidence boost from RBA rate hold

Australian household confidence showed a “weak” rise in August after the Reserve Bank held interest rates, but “pessimists still outnumber optimists”.

In another grim reading, the latest Westpac-Melbourne institution monthly consumer sentiment index rose 6 per cent to 88.9 in August.

Despite the jump, Australians are still considered to be deeply pessimistic about their current finances and the future of the Australian economy with 100 considered a pass mark.

Westpac chief economist Luci Ellis said Australians were still feeling the pinch when it comes to cost-of-living pressures.

“This is still a weak result and noticeably lower than the readings recorded last year,” she said.

“While consumers are feeling less pessimistic than last month, pessimists still outnumber optimists, especially about their current finances.”

According to Westpac-Melbourne Institute survey results, the mood almost immediately improved last Tuesday following the RBA monetary policy board’s announcement it would keep the official cash rate on hold at 4.35 per cent.

RBA governor Michele Bullock revealed the board had discussed a rate hike, which it did not do at its May meeting.

She also warned there could be further rate hikes as it focused on ensuring high inflation – currently at 3.8 per cent – did not become embedded.

The Reserve Bank will next meet on September 28-29 when the board is largely predicted to hold rates, with only one set of monthly inflation data due to be released, and a weaker than expected labour market.

“Having already raised the cash rate three times this year to a restrictive level, the monetary policy board has scope to keep the cash rate on hold while it monitors the effect of policy tightening across the economy and confirms whether underlying inflation has peaked,” Ms Ellis said.

Most of the gains in the index were based on the current conditions, while Australians are still pessimistic about the long term outlook.

Ms Ellis said the gains in consumer confidence came after the Reserve Bank announced rates would be left on hold.

“Responses received before the decision were little changed compared with July, with all the monthly improvement emerging afterwards,” Ms Ellis said.