RBA’s hold keeps consumer sentiment recovery in check

Last week’s move by the Reserve Bank to hold fire on a third interest rate cut for 2025 has failed to dampen the spirits of Australian consumers.

But the shock decision that blindsided most market watchers did keep a lid on what would have been a solid gain in the monthly consumer sentiment index measured by big four bank Westpac and the Melbourne Institute.

The index data, released on Tuesday, showed the recovery in consumer sentiment experienced another “false start” in July — rising just 0.6 per cent to 93.1 — up from June’s reading of 92.6.

Westpac head of Australian macro-forecasting Matthew Hassan said responses over the survey week showed a clear disappointment following the RBA’s move to leave the official cash rate on hold a 3.85 per cent — despite analysts saying ahead of the two-day meeting that a 25 basis-point cut was a near certainty.

Mr Hassan said those surveyed before the decision reported an index read of 95.6 while those surveyed after reported it had dropped to 92.

“The reaction checked what would probably have been a solid rise,” he said.

“This is the third time since late last year that events have conspired to undermine promising improvements in the consumer mood.

”Daily responses showed similar patterns in April (following the Liberation Day tariff announcements) and back in November (when a milder RBA disappointment combined with a surprise US Presidential election result).

“The latest check to sentiment is less dramatic but it still leaves the consumer mood stuck at ‘cautiously pessimistic’ levels overall.”

RBA governor Michele Bullock said last week the board would “wait for a little more information” to be certain it had beaten inflation.

The Westpac-Melbourne Institute survey found family finances improved for July but showed a sharper pull-back following the rates call.

A family’s current perception of their finances compared to a year ago posted a solid 5 per cent rise overall to 79.2.

A family’s confidence in their finances for the next 12 months posted a milder 2.6 per cent gain to 101.4, nudging back into net positive territory as households bank on signals from the RBA that more rate relief would be on the way when the time is right.

The index’s “time to buy a major item” reading dropped 2.6 per cent to 97.6, partly unwinding last month’s promising 7.5 per cent surge and dipping back into slight negative territory.

“The decision on interest rates may have tipped some consumers towards holding off on major purchases,” Mr Hassan said.

But there were positive signs for Australia’s overall economic fortunes over the next 12 months, with the index’s outlook measure jumping 1.8 per cent to 94.1. Looking five years ahead, the measure rose 2.8 per cent to 93.4.

“Both sub-indexes are still marginally above historical averages but have struggled to sustain gains since the start of the year,” Mr Hassan said.

“Tariff-related uncertainty about the global economic backdrop continues to weigh particularly heavily on five-year views on the economy with this sub-index down nearly 8 per cent compared with March.

“Consumers are not overly concerned about the economy but appear unsure about which direction its heading in. “