Australian consumers cheer RBA pause in April- Westpac

Australian consumers cheer RBA pause in April- Westpac © Reuters.

By Ambar Warrick– Australian consumer sentiment improved more than expected in April, a private survey showed on Tuesday, after the Reserve Bank paused its interest rate hike cycle, while inflation also appeared to be showing signs of peaking.

The Westpac-Melbournce Institure Consumer Sentiment index jumped 9.4% to 85.8 in early-April, more than expectations for a rise of 1.5%. The index grew at its fastest pace since late-2020, as it bounced back from near record lows.

A bulk of this recovery was driven by the RBA deciding to hold interest rates steady, with sentiment among mortgage holders improving sharply after the RBA decision.

The central bank held interest rates steady last week, stating that it was waiting to observe the full effects of a sharp increase in interest rates through the past 12 months.

The RBA decision also came as inflation eased from over 30-year highs for two consecutive months, likely indicating that price pressures had peaked amid rising interest rates and cooling economic growth.

But despite an improvement in sentiment through early-April, Westpac warned that sentiment still remained weak, which is likely to keep consumer spending muted till mid-2024. The RBA may also yet raise rates further when it meets in May.

Governor Philip Lowe also warned that interest rates could rise further if inflation remained stubbornly high.

“A final 0.25% increase in the cash rate at the May Board meeting remains the best policy approach rather than awaiting even more information and risking even higher rates later in the cycle,” Bill Evans, Chief Economist at Westpac Group wrote in a note.

Australian economic growth is forecast to cool substantially this year, with unemployment set to increase as the effects of higher rates are felt by the economy. While inflation is expected to trend lower, price pressures are only set to fall within the RBA’s 1% to 3% target range by mid-2025.

Focus is now on the RBA’s updated forecasts for the economy, due in early-May, right before the central bank’s rate-setting meeting for the month.