Australia’s Westpac Consumer Sentiment surged by 6.2% yoy in October to 89.8, marking the highest reading since RBA began its tightening cycle two and a half years ago.
Westpac noted that consumer sentiment has been buoyed by interest rate cuts overseas and improving inflation conditions domestically. “Consumers are no longer fearful that the RBA could take interest rates higher,” Westpac commented.
In particular, the Mortgage Rate Expectations Index, which tracks expectations for variable mortgage rates over the next 12 months, saw a significant drop of -14.1% mom to 106.4. The index has now declined by one-third since July, as households feel less pressure from future rate increases.
Westpac anticipates that RBA’s cash rate target will remain unchanged for the rest of the year. While Q3 CPI data, due on October 30, is expected to show inflation tracking lower, it may not be enough for RBA to “shift to an explicit easing bias” at the November meeting. However, Westpac believes the Board could begin easing its “hawkish hold” and adopt a more neutral policy stance as inflation pressures show signs of abating.
