Australian consumers shell-shocked as interest rates climb

SYDNEY – Australian consumer sentiment took a dark turn last week after the country’s central bank raised interest rates to a decade high and warned yet more pain lay ahead for borrowers, a survey showed on Tuesday.

The Westpac-Melbourne Institute index of consumer sentiment slid 6.9 percent for February, erasing a 5- percent bounce the previous month. The index reading of 78.5 meant pessimists greatly outnumber optimists.

The result was echoed by a weekly survey from ANZ which showed a steep 5.5- percent drop in its confidence index to the lowest reading since April 2020.

Both found mortgage holders were particularly gloomy after the Reserve Bank of Australia (RBA) lifted its cash rate a quarter point to 3.35 percent on Feb. 7, and flagged at least two more hikes were likely.

Westpac senior economist Matthew Hassan noted the survey straddled the decision and the index after the move dove to 74.8, compared to 83.5 beforehand.

“The consumer sentiment survey continues to give a very clear warning that the pressures bearing down on the consumer are becoming intense,” said

“While spending has held up relatively well to date, we expect an abrupt slowdown to show through in coming months.”

For respondents with a mortgage, confidence dove 13.5 percent in February, to be down more than 30 percent on the year.

The weight of rising mortgage payments saw the survey’s measure of family finances compared with a year ago tumble 8 percent, while the outlook for finances over the next 12 months fell 6.7 percent.

The index of the economic outlook for the next 12 months dropped 7.7 percent and the outlook for the next five years eased 2.8 percent.

Westpac’s measure of whether it was a good time to buy a major household item slid 10.1 percent in a warning sign for retailers.