Rate hike hits consumer confidence

By Matthew Henry

SYDNEY: Consumer confidence fell 5.5 per cent this month to its lowest level since late 2006 following the Reserve Bank’s decision to increase interest rates, according to a Westpac-Melbourne Institute survey.

The February survey’s consumer sentiment index slipped below 100 points for the first time in over a year, sinking to 97.4 points, down from 103.1 in January.

It is the second consecutive month in which consumer sentiment has fallen, following an 8.3 per cent drop in January.

According to the Melbourne Institute, the survey was conducted in the week when the Reserve Bank of Australia (RBA) increased the cash rate and amidst talk of a US recession.

“An Index level below 100 indicates that pessimists now outnumber optimists,” said Westpac chief economist, Bill Evans.

“Consumer sentiment has fallen sharply following each of the six RBA rate hikes from 2005–2007.”

The index is now 12.6 per cent below its level a year ago, 15.5 per cent below the average level in 2007 and 6.5 per cent below the average in 2006.

The RBA raised the official interest rate by a quarter of a percentage point on 5 February to 6.25 per cent.

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