Less than a third of consumers expect RBA rate cut in next 12 months: Westpac consumer survey

Consumer sentiment has shifted away from an expectation that mortgage rates will fall further over the next 12 months to expectations that they are just as likely to remain unchanged or rise over this time frame.

Less than a third of consumers (32.5%) who hold a view on mortgage rates expect them to fall over the next 12 months, according to the August Westpac-Melbourne Institute Consumer survey.

Two-thirds of consumers expect either rates to rise (32.7%) or rates to remain unchanged (34.7%), indicating a considerable lack of consensus on where mortgages rates are heading over the medium term.

The extra question on mortgage rates was included as part of the wider benchmark Westpac-Melbourne Institute Consumer Sentiment index in February and June.

The latest August results show a distinct shift away from expectations of future rate cuts in the June survey, when 52% of consumers expected rates to fall – an outright majority if a very slender one.

In the February survey – following the rate cuts in November and December – more respondents (around 40%) expected rates to rise than fall.

The graph below shows just how confused borrowers have become about the future direction of rates – a year ago, more than 70% of borrowers expected (incorrectly, it turns out) that rates would rise over the next 12 months.

Click to enlarge

According to Westpac senior economist Matthew Hassan, consumers lack of consensus on the rate outlook likely reflects several factors.

“The inflation backdrop looks benign ... consumers see little threat to the RBA’s 2% to 3% target.

“Meanwhile the picture on Australian growth remains mixed.

“Notwithstanding patchy consumer sentiment on the economic outlook, actual growth remains solidly positive. Similarly, despite intense job loss fears official unemployment rates are holding at low levels," Hassan says. 

Hassan says comments from RBA governor Glenn Stevens in recent speeches would likely have reinforced this mixed assessment.

“‘The glass half full' speech in early June and his Anika Foundation address on July 24, entitled 'The Lucky Country', both emphasised Australia’s positive economic prospects.

“Against this though the RBA’s recent decisions, accompanying statements and forecasts indicate the bank is in a 'wait and see' mode.

“Markets continue to favour additional official interest rate cuts with 50 basis points of easing by early 2013 still priced in," Hassan says.

“However, this measure is likely being skewed by investors seeking ‘safe-haven’ assets. Economists also favour rates moving lower with polls showing a median expectation of a 25 basis points reduction by Sep 2013.

“Westpac continues to anticipate 75-basis-point reduction over the same period."

Across the different sub-groups, home owners remain more dovish than those renting but showed a bigger swing since June, suggesting more positive house price news may have been a factor.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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