Weekly Australian consumer confidence drops amid rate swings

(Bloomberg) —

A measure of Australian consumer sentiment plunged 6% last week on expectations that a spike in inflation will prompt the Reserve Bank to raise interest rates.

The consumer confidence index fell to 90.7, the lowest level since August 2020, according to a statement released Tuesday by Australia and New Zealand Banking Group Ltd. A number below 100 indicates that pessimists outnumber optimists. The depressed mood follows data last week which showed consumer prices jumped 5.1% a year in the first three months of the year, the fastest pace in 21 years.

This has sparked expectations that the RBA will raise its cash rate by 15 basis points at today’s meeting in what would be the first rate hike since 2010. The decision is due at 2.30pm Sydney time. The ANZ report says this is the lowest level of confidence at the start of a tightening cycle since the early 1990s.

“This could see the RBA tightening more slowly than market prices,” said David Plank, Australian economics chief at ANZ.

Financial markets are forecasting rapid rate hikes by the RBA, pushing the cash rate to 2.6% by the end of this year and 3.4% by April 2023.

Today’s data shows confidence has fallen by 9.6% among people who are ‘paying off their mortgage’. For those who already own their home or rent it, it fell by 4.7% and 4.2% respectively.

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