Confidence up with strong improvement in time to buy dwelling sentiment: Westpac

The Westpac Melbourne Institute Index of Consumer Sentiment increased in February, a much stronger result than Westpac chief economist Bill Evans had expected.

"It represents the first time since February last year that we have seen a majority (albeit miniscule) of optimists over pessimists," said Evans.

"It is also the highest level of the Index since January last year."

Evans suggested the rate cut was not the only reason behind the big boost to confidence.

"Lower petrol prices and a surging sharemarket also appear to have had an impact."

The importance of these last two factors was highlighted by the "surprisingly modest 0.7% increase" in the confidence level of those respondents holding a mortgage – a group that is typically the most sensitive to interest rate changes, much lower than the over all increase of 8% in February.

The index tracking views on ‘time to buy a dwelling’ jumped by 9.7% to reach its highest level since February 2014.

Similarly, the index of house price expectations jumped by 6.9% to reach its highest level since September 2014.

Noting the Reserve Bank Board next meets on 3 March, Evans suggested for now, "we are comfortable to maintain our original call for a follow up move in March".

"However we recognize that a perfectly respectable case can be made for the Bank to pause for a month or two to assess developments in the housing market.

"The most important point is that February is not the end of this rate cut cycle with another cut extremely likely over the next three months." Evans concluded.