Confidence among households with mortgages has plummeted as borrowers brace for RBA action
Confidence among households with a mortgage has plummeted in the past month as borrowers brace for rate hikes, according to new data from Westpac.
The overall Westpac-Melbourne Institute consumer sentiment index dropped by 0.9% to 95.8 points in April, according to a report by the Australian Associated Press. That’s the index’s lowest level since September 2020, when COVID-19-related fears dominated consumers.
An index reading below 100 indicates more pessimism than optimism among respondents, AAP reported.
April’s drop followed a sharp tumble of 4.2% in March, when concerns about inflation and interest rates were preying on borrowers’ minds, as was the flooding along the east coast.
“There is further evidence that interest rates, inflation and weather continued to unnerve consumers in the current survey,” Westpac chief economist Bill Evans said.
Confidence among those with a mortgage tumbled 9.2% in April, and 70% of consumers expect interest rates to rise in the next 12 months – up from 67% in March. The share of consumers expecting rates to rise by more than one percentage point rose from 30% in March to 36% this month, AAP reported.
Westpac pushed up its forecast for the first rate hike to June following last week’s meeting of the Reserve Bank of Australia’s board. At that meeting, the central bank indicated that it was no longer prepared to be “patient” when setting monetary policy.
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“Once the tightening cycle begins, we expect a series of rate hikes in most months in 2022,” Evans said.
Catherine Birch, senior economist at ANZ, told AAP she expects the consumer price index for the March quarter, due April 27, to show annual inflation running at 4.7%, compared to 3.5% previously. Annual underlying inflation is expected to rise to 3.4% from 2.6% – well above the central bank’s target band of 2% to 3%.
“We still think the RBA will wait until June before lifting the cash rate,” Birch said. “A big upward surprise could challenge this conclusion.”
