By Claire Reilly

The Westpac Melbourne Institute Index of Consumer Sentiment has seen a slight increase over the past month, despite the Reserve Bank of Australia recently cutting the official cash rate by the greatest amount since February 2009.

The Index increased by 0.8 per cent in May, up to 95.3 from the figure of 94.5 in April. Interestingly, a further sub-index that tracked responses on “whether now is a good time to buy a major household item” dropped by 6.9 per cent, down to its lowest level since June 2009.

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Speaking about the figures was Westpac’s chief economist, Bill Evans.

“This is a disappointing result,” said Evans. “It follows a surprise 0.5 per cent cut in the official cash rate by the Reserve Bank and extensive media coverage that the unemployment rate had fallen from 5.2 per cent to 4.9 per cent.

“However, other factors appear to have offset these positives. Firstly there might have been a degree of disappointment amongst households that the standard variable mortgage rate was reduced by ‘only’ an average of 0.37 per cent. Secondly, increasingly disturbing news around Europe and specifically Greece is likely to have unnerved households. 

“There was a substantial increase of 17 per cent in the component of the Index which measures how respondents feel about their finances relative to a year ago,” added Evans. “That is an encouraging result from the perspective of the impact of the rate cut. However it is coming from an extremely low base in April and only restores the sub-index to its March level."

Evans also commented that today’s figures on consumer confidence could affect the RBA’s future decisions to further cut the official cash rate.

“It is our current view that the Bank will wait until July before it cuts again but developments overseas along with today’s evidence that the recent cut has had little impact on Confidence could easily see the Bank bring that decision forward to the next Board meeting in June,” he said.