“Index reads below 80 are rare, back-to-back reads even rarer,” says Evans, citing rising borrowing costs as a “clear factor continuing to weigh on confidence.” — Bloomberg
SYDNEY: Australia’s consumer confidence held near a 30-year low as households fretted over mounting cost of living pressures and further policy tightening, bolstering the case for the Reserve Bank of Australia (RBA) to hold interest rates next month.
Consumer sentiment was unchanged at 78.5 in March, a Westpac Banking Corp survey showed yesterday, the second straight month of extremely weak readings.
“Index reads below 80 are rare, back-to-back reads even rarer,” said Westpac chief economist Bill Evans, citing rising borrowing costs as a “clear factor continuing to weigh on confidence.”
The survey showed that 74% of respondents polled after the RBA’s policy decision expect rates to move higher over the next year, with 45% expecting a hike of one percentage point or more.
That contrasts with money market pricing that has all but erased odds of the central bank hiking further.
The collapse of US-based Silicon Valley Bank has even prompted traders to price some chance of rate cuts in the second-half of this year.
The sharp reaction of households reflects the high sensitivity of Australian borrowers to rising rates as most have variable-rate loans. It underlines the fine judgment governor Philip Lowe needs to make in terms of cooling inflation without tipping the economy into recession.
Evans pointed out that an “emerging area of particular concern” in the survey was the outlook for sales of major household items.
The “time to buy a major household item” sub-index fell 4% to 74.9 in March, following a 10% drop last month.
That’s the lowest read of the component in the history of the survey going back to 1974, Evans said.
“Consumer risk aversion has intensified in early 2023,” he added.
Evans pointed to a quarterly question on the ‘wisest place for savings’ that showed “consumers continue to gravitate strongly towards safe or defensive options” with over a third nominating bank deposits and nearly a quarter paying down debt as the best options.
The RBA has hiked by 3.5 percentage points since May to the current 3.6%.
Lowe last week said he had a “completely open mind” on the decision at the next policy meeting, adding that it will be appropriate at some point to sit still and assess the economy.
The RBA next meets on April 4. — Bloomberg
