Consumer confidence rebounded strongly in September, as a recovery in economic growth and fading expectations of an interest rate hike reassured households.
After falling to its lowest level in more than two years in August, the Westpac-Melbourne Institute Index of Consumer Sentiment rose by 8.1 per cent in September to 96.9.
The index fell to 89.6 in August, its lowest level since May 2009.
Westpac chief economist Bill Evans said the surprise increase was because of a strong recovery in economic growth and lower expectations of an interest rate rise.
He said the Reserve Bank of Australia (RBA) was no longer threatening to raise rates, due to escalating turmoil in the global economy and evidence of a domestic slowdown.
“Concrete evidence of the improved outlook for interest rates came shortly after the August survey when the major banks actually lowered their fixed rate mortgage rates,” Mr Evans said.
“While possibly coming as a surprise, this action would have comforted anxious households.”
Citigroup economist Joshua Williamson said steady interest rates and the growing expectation of a rates cut had contributed to improved sentiment.
Mr Williams also said the strong recovery in economic growth in the June quarter, “was an important circuit breaker for sentiment, providing concrete evidence on the post-flooding performance of the economy.”
But despite the rise, the index remains at a weak level overall and is 14.4 percentage points below its reading a year ago.
The September reading was still below the neutral mark of 100, meaning the number of pessimists outweighs the number of optimists.
Mr Evans said respondents remained extremely concerned about the outlook for their own finances.
The component measuring how respondents expect their financial position to change over the next 12 months was weaker than at any time since July 2008.
Respondents felt it was a good time to buy a home.
But with households still concerned about their own finances, “there is a risk that, while seeing value, they will not be prepared to act on this,” Mr Evans said.
Mr Evans said he remained confident the RBA would not lift rates at its next monthly board meeting, in October, and that the next move would be downward.
“Confirmation of steady rates, with no threats to raise rates, is likely to calm those households who still fear rate hikes,” he said.
However, steady rates would not be enough to restore the consumer to normal levels of confidence, he said.
Conversely, Mr Williamson said the rise in sentiment lessened any chance of a near-term cut in official interest rates.
