Consumers are more pessimistic about rates than they've been in more than a decade
Two-thirds of Australians believe mortgage rates will rise in the next 12 months, and more than 25% think rates will rise by more than a percentage point, according to a new survey by Westpac. That’s the most pessimistic consumers have been about rates in more than a decade.
Worries about higher interest rates and cost-of-living pressures dragged household confidence down in February, according to a report by The Australian. The Westpac survey showed the drop in sentiment despite shrinking Omicron case numbers and signs that unemployment could be heading to near 50-year lows.
Westpac’s consumer confidence index dropped from 102.2 points in January to 100.8 points, according to a survey conducted Feb. 6 – a reading that Westpac said was “barely in optimistic territory.”
Westpac chief economist Bill Evans told The Australian that it was surprising to see households less optimistic than a month earlier given improving COVID numbers and evidence that the jobs market was booming. While questions about views on the economy showed a rise in sentiment from the previous month, those asking about confidence in the state of households’ finances now and in the future showed a drop in confidence.
“The most likely explanations for th4ese elevated pressures on finances relate to Omicron-related disruptions to activity and earnings at the start of the year, the rising cost of living, and the prospect of rising interest rates,” Evans said. “...Meanwhile, there is a firming expectation among consumers that interest rates are set to rise.”
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Evans has predicted that the Reserve Bank will hike the cash rate to 0.25% in August, The Australian reported.
Last week – after months of insisting a rate hike wouldn’t come this year – RBA Governor Philip Lowe conceded that a spike in inflation at the end of 2021 made it “plausible” that rates would rise in 2022.
“The proportion of [survey] respondents expecting an increase in mortgage rates over the next 12 months lifted from 55% in January to 66% in February, with over one in four customers now expecting rates to rise by more than a percentage point,” Evans told The Australian. “This is the most pessimistic consumers have been about the interest rate outlook since August 2011, although on that occasion rate hikes actually failed to materialise.”
