Consumer confidence drops 5% after February’s bank rate rises

Consumer confidence fell 5% in March partly due to last month’s announcements from major banks they would increase mortgage rates, according to the latest research from Westpac.

Westpac chief economist Bill Evans says the heightened sensitivity to interest rates appears to be partly responsible for the decline, with the previous survey taken just after the banks said they would all raise mortgage rates despite the RBA keeping the cash rate at 4.25%.

Combined with the fact most mortgage holders had expected a rate cut of 25 basis points, the negative sentiment has been pushed into the March result.

In fact, confidence fell 6.8% among those who have a mortgage.

However, there are other factors at play, with confidence dropping 10.8% among those who are renting.

“Our supplementary questions indicate that respondents are particularly concerned about economic conditions and employment,” Evans said.

During March, the most recalled news categories were “economic conditions” at 56% respondents, “international conditions” at 30.9% and “budget and taxation” at 28%. Interest rates were at 24.5% and “employment” at 16.6%.

Respondents were more positive about international conditions, but still worried about employment and interest rates. Concerns about economic conditions remained “very high”.

“Recent data releases showing weak growth in GDP in the December quarter and a rise in the unemployment rate for February are likely to have exacerbated respondents’ concerns, as would the sharp fall in company profits reported for the final quarter of 2011,” Evans said.

All five components of the index fell in March, with the sub-index tracking responses on “family finances compared to a year ago” falling 8.6%. And the economic outlook is down as well, with expectations for the next 12 months down by 2.5%.

Saving plans are still high, with 34.6% of respondents saying bank deposits are the wisest place for savings. That’s up on 30.1% in December, but still down from the 37.8% rate recorded in September.

As for predictions on the RBA’s next movement, Westpac suggests a cut is coming but the RBA won’t be convinced at the April 3 meeting.

“We assess that the case has already been made for lower rates in Australia but expect that, at this stage, the Board is not convinced.”

“More time will be required before we see another rate cut. Our best expectation is in May or June.”