Australians are more pessimistic about the economy than any time in the past four years, with confidence dropping since the Reserve Bank started cutting rates.
The Westpac-Melbourne Institute consumer sentiment index found a significant drop in confidence this year, despite interest rate cuts being slashed to record lows three times since June.
“This result will be of some concern to the monetary authorities. Typically, an interest rate cut boosts confidence particularly around consumers’ expectations for and assessments of their own finances,” Westpac chief economist Bill Evans said on Wednesday.
“Consumers are looking behind the reason for the rate cut and, arguably, the absolute level of rates and getting nervous.”
The index dropped from 98.2 in September to 92.8 in October, the lowest level since July 2015.
“The index has now been in the range where pessimists outnumber optimists for three of the last four months,” Mr Evans said.
The July 2015 plunge was sparked when a sudden 30 per cent plunge in the Chinese stock market concerned Australians, before it rebounded the following month.
While the biggest falls in October were around consumer views on the economy, consumer views on family finances remained the clear weak spot.
“The ‘time to buy a major household item’ sub-index declined 4.2 per cent, also moving to a four year low,” Mr Evans said.
“Spending on discretionary and big ticket durable items has been particularly weak over the last year.”
NAB senior economist Gareth Spence said the recent personal income tax cuts appear to have failed to provide a significant boost to household spending, given retail sales growth remains soft.
“We think the recent rate cuts will have an impact, but the effects will take longer and be more variable, which will make them less apparent,” Mr Spence said.
Treasurer Josh Frydenberg has attacked the big four banks for not passing on full interest rate cuts, which he says they have no reason to hold on to.
Since 2011, research from RateCity shows the gap between the official interest rates and the big four banks’ rates has grown, from three per cent to four per cent.
The Reserve Bank has cut rates to a record low of 0.75 per cent in a bid to drive unemployment further down and push wages up.
But the RBA has also called on the government to invest more to stimulate the economy, and flagged the possibility of more cuts.
“Westpac expects that next move will be a further cut in the cash rate to 0.5 per cent in February next year although a case can be made for an earlier cut in December depending on developments in the labour market and the global economy,” Mr Evans said.
The low interest rate environment has also raised the prospect of quantitative easing, in which the Reserve Bank would buy up debt to pump more money into the economy.