Consumer Sentiment Rises As Australians Feel Increasingly Secure

Post by Sharat on March 11, 2010 · Under Australian Economy, Business News, banking, home loans, interest rates, mortgages · Comment

Australians feeling increasingly secure in their jobs due to the rapid decline in unemployment rate over the last few months has helped them deal with the pain of tighter interest rates.

The results of the latest Westpac-Melbourne Institute consumer sentiment index in March shows that consumer confidence continues to rise despite interest rates being hiked for the fourth time in six months at the start of the March.

The index rose 0.2 per cent during March, which Westpac called a “solid result”, and suggested the reason for the increase was the decline in unemployment rate from 5.4 per cent to 5.3 per cent, which lessened the blow of tighter interest rates.

The unemployment rate peaked at 5.8 per cent last year.

Phillip Lowe, assistant governor of economics at the Reserve bank of Australia said it was hard to “escape any other conclusion” that the labour market was strong.

Speaking during a conference in Sydney, Dr. Lowe said that the issues confronting Australia were very different from those faced by most other developed economies.

“Elsewhere, the challenge is to get private demand to grow on a sustainable basis so that it can catch up with the supply potential of the economy, in contrast, for Australia, the main task is to expand the supply side of the economy so that demand can grow solidly without causing inflation to rise.” Dr. Lowe told the Urban Development Institute of Australia National Congress.

As the government rolled back its more generous first home buyers grant, and the central bank raised interest rates, the demand for new mortgages has declined.

The number of new mortgages declined 7.9 per cent in January compared with the previous month, representing the fourth such consecutive decline.

The percentage of loans given to first time buyers declined to 20.5 per cent in January, compared with 21 per cent in the previous month. A record peak of 28.5 per cent was set last May.

Westpac chief economists Bill Evans warns that interest rates may reach a level where there will be significant impact on consumer sentiment.

“History suggests seven per cent is a significant threshold mortgage rate for consumers,” Mr. Evans said.

All the big banks matched the latest increase, which lifted the average standard variable mortgage rate to 6.9 per cent.

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