Interpac Business and Migration Solutions Melbourne Australia

(October 13, 2010)

AN index of consumer sentiment in Australia rose 3.3 per cent in October from September, after the Reserve Bank kept interest rates steady.

The index rose to 117.0 points in October in seasonally adjusted terms from 113.2 points in September, Westpac and the Melbourne Institute said.

In annual terms, the consumer sentiment index fell a seasonally adjusted 3.6 per cent in October from September. In trend terms, the index fell 1.2 per cent from September, contributing to a 3.8 per cent annual decline.

Westpac chief economist Bill Evans attributed much of the gain to a surprise decision by the Reserve Bank of Australia to keep interest rates steady at 4.5 per cent at its latest meeting in early October. After a string of six rate hikes in seven meetings, the central bank has now paused in each of its last five meetings.

"There were many reasons to expect the index to bounce back from the surprise 5 per cent fall in September,” Mr Evans said. "Households reacted to a range of favourable news.

"The decision by the Reserve Bank to keep rates on hold at the October board meeting would have buoyed consumers," said Mr Evans, adding that robust jobs growth and a rallying Australian dollar have also helped sentiment.

The Australian dollar is up more than 20 per cent since the middle of the year and late last week reached its highest point since the currency was floated in 1983. Trading at US98.62 cents recently, the Australian dollar is seemingly on the doorstep of parity with the US dollar.

Still, Mr Evans noted consumer sentiment on house prices wasn't robust.

"Prospects for house prices are also deteriorating, with a key private sector measure reporting a small price fall of 1.5 per cent in the three months to August," he said.

"Our separate survey of house price expectations shows that the proportion of respondents expecting house prices to rise has fallen from 70 per cent in July to 63 per cent in October.

"In fact, despite rates remaining on hold, sentiment towards buying a house has deteriorated slightly, the index falling by 2.7 per cent," said Mr Evans, who notes a forecast 25 basis point rate hike from the RBA at its next meeting could affect the next consumer sentiment figures.

(Source:theAustralian)