Australia consumer sentiment rebounds on rate pause hopes in Feb- Westpac

Investing.com-- Australian consumer sentiment improved substantially in early-February, a private survey showed on Tuesday, amid increased hopes that the Reserve Bank was done hiking interest rates, while the government’s planned tax cuts also lifted spirits.

The Westpac-Melbourne Institute Index of Consumer Sentiment jumped 6.2% to a 20-month high in February, also marking its biggest rise in 10 months. This saw the index recover sharply from near record lows. 

Sentiment was aided chiefly by growing hopes that the Reserve Bank of Australia was done raising interest rates, especially following softer inflation prints for the fourth quarter and December, Westpac analysts said in a note.

“Responses over the course of the survey week suggest the rally is still very tentative with a sharp pull-back amongst those surveyed after the RBA’s February policy decision,” Matthew Hassan, Senior Economist, Westpac Group wrote in a note.

The RBA had warned that sticky inflation could still see the central bank hike interest rates further, although the bank has kept rates steady since November. 

But despite the bank’s hawkish stance, analysts said they expected the RBA to keep rates steady in the coming months, especially if inflation maintained its downward trajectory. 

Consumer sentiment in February was also aided by recent changes to the government’s planned tax cuts this year, with consumers in the middle income band growing more optimistic. 

Australian Prime Minister Anthony Albanese had promised to cut taxes amid increasing inflation and sluggish wage growth in the wake of the COVID-19 pandemic. But he had recently announced a potential change to the planned cuts, which could see increased income tax reductions for middle and low-income earners. 

While consumer sentiment improved sharply in February, it was still nursing sharp declines over the past two years, as high inflation and rising interest rates ate into household savings. 

The Westpac-Melbourne Institute index still has a long way to reach highs seen during the ultra-low interest rate environment of 2021, and remained within sight of 2020 lows. 

Still, Tuesday’s survey showed consumers were increasingly optimistic about the Australian economy in 2024.