The Westpac-Melbourne Institute index of consumer sentiment was released last week and it showed a drop to 92.2 from the 95.3 recorded in June. It was the lowest result since December and another one of a string of negative results in the last year and a half. Westpac saw Greece’s debt crisis and China’s share market volatility as the probable causes of households’ pessimism but, as happened in 2011 with a bout of European banking instability, the bank expects these influences to be temporary and for the index to bounce back. However, Bill Evans, Westpac’s chief economist said such volatility did “not disguise the fact that underlying consumer confidence in Australia remains consistently low.”
The results have not changed his view of RBA rates either and he says the RBA “unlikely to cut rates in August”. Any change in the RBA’s view would be predicated on “a substantial downward revision to its growth forecast for 2016 to below-trend territory”. Finally, he commented on current market expectations of a move in November. Markets were pricing in a 64% chance of a rate cut in that month but Westpac retained its “view that rates will remain on hold for the remainder of this year and throughout 2016.”