Interest rate cuts ‘truly off the table’ as more Australians brace for further hikes, according to Westpac

Australians believe the prospect of interest rate cuts is now well and truly off the table for this year as a growing number of consumers brace for further hikes — mainly driven by those in WA. Consumer sentiment continues to hold around very weak levels, according to Westpac-Melbourne Institute’s latest index, which barely lifted over the three months to July and still indicates widespread pessimism. Westpac senior economist Matthew Hassan said the protracted sentiment slump, which had persisted for more than two years, was the second only to the early 1990s in terms of the duration and weakness of reads. The most striking sentiment shift over the past three months had been around consumer expectations for interest rates. Westpac’s mortgage rate expectations index — which tracks consumer expectations for variable mortgage rates over the next 12 months — surged 23 per cent over the three months to July. The lift reversed all of the steep drop over the past four months. As many as 60 per cent of consumers now expect mortgage rates to rise over the next year, up from 40 per cent in April. “The shift in expectations has been across the board but sharper amongst those in older age groups, middle-income earners, homeowners and consumers in WA,” Mr Hassan said. “Consumers clearly see the prospect of RBA rate cuts as well and truly off the table and most appear to be bracing for another round of interest rates rises.” Despite increasing fears of rising rate, consumer expectations for inflation have continued to track gradually lower. Westpac said inflation expectations ticked down 4.58 per cent in April to 4.33 per cent in July to be in line with the long-run average of 4.37 per cent. “Some of this latest decline may reflect Federal Budget measures around electricity and rental assistance which are expected to lower observed inflation as the CPI tracks the ‘out-of-pocket’ cost to consumers,” Mr Hassan said. The more comprehensive June quarter inflation data — due next Wednesday — will be the most important release on the Reserve Bank’s radar ahead of the board’s August 5-6 meeting that some economists predict could deliver another interest rate hike.