Wainwright Marks Management - Rate Cut Fails to Boost Australian Household Confidence

Australian households responded to the recent rate cut by the Australian central bank with lukewarm enthusiasm as the state of the economy continues to inspire gloom.

Although confidence showed signs of improving leading up to the rate cut, Westpac Banking Corp.'s consumer sentiment index declined by 0.6% this month. Analysts at Wainwright Marks Management say recent GDP data which revealed that Australia's economy had expanded at the slowest rate in 10 years was likely to blame for the decline in sentiment.

Strong concerns about the overall state of Australia's economy seem to have outweighed the temporary boost provided by the decrease in borrowing costs.

Australian households are overburdened with extremely high levels of debt due to a significant period of low wage growth and their financial problems have been exacerbated by declining property prices. Consumer spending, which contributes 60% of the country's GDP, has been negatively impacted prompting the central bank to cut interest rates for the first time in almost 3 years in an effort to alleviate the burden on household budgets.

Reserve Bank of Australia Governor, Philip Lowe, has also called upon policy makers to approve a series of tax cuts to increase the flow of capital into the economy.

Analysts at Wainwright Marks Management say another decrease in interest rates will likely happen within the next couple of months as the Reserve Bank tries to encourage companies to increase hiring and invest in the stalling economy.