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Confidence boosted by rate cut

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Consumer confidence has rebounded strongly following the Reserve Bank’s rate cut.

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Confidence jumped 8.5 per cent in May, according to the Westpac/Melbourne Institute index of consumer sentiment on Wednesday, rebounding from a four per cent fall in April.

The index rose to 103.2 points with consumer sentiment 0.8 per cent higher than it was in May last year.

Westpac chief economist Bill Evans said the leap in confidence flowed from the RBA’s move to cut rates to an all-time low of 1.75 per cent last Tuesday.

“Our analysis indicates that the dominant driver of the boost to confidence has been the rate cut,” Evans said in a statement.

“Sharp increases in the index in response to rate cuts are fairly common, although they depend somewhat on other events at the time and whether moves were expected.”

Consumers expected last week’s federal budget to have a negative effect on their family finances, which Mr Evans said had been the case with every budget since 2010.

But respondents were bullish about short and medium term economic conditions in the survey.

Westpac said consumers were 13.2 per cent more confident about conditions over the next 12 months and 14.8 per cent more optimistic about conditions over the next five years

Consumers were also 3.2 per cent more upbeat about their family finances compared than one year ago, however Mr Evans noted that category had recorded the smallest increase in May and remained below its level of two months ago.

Looking ahead, the survey found respondents were 7.2 per cent more positive about their family finances over the next 12 months.

The rate cut also helped trigger a spending mindset, with the index relating to whether it was good or bad time to buy a major household item rising 4.9 per cent.

AAP

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