When the RBA raises interest rates, it does so to reduce spending and inflationary pressures in the economy.
Often times however, the RBA wages a Cold Monetary War where they hint at rate rises to cause consumers to change their behaviour without the need to actually raise rates.
They haven’t actually gone down that path yet, but already it seems like Australian households are restraining spending in fear of rate rises if the WestPac Redbook is to be believed.
Westpac’s Redbook is a detailed summary of the state of the consumer after the full results of the Westpac – Melbourne Institute Consumer Sentiment survey is released. It’s a treasure trove of information about what consumers are thinking and doing and it is clear after reading it where Westpac’s view that rates will still head lower in 2014 comes from.
The RBA may not have raised rates but Australian households are now worried they will, with Westpac reporting that:
“The Feb survey included an extra question on expectations for mortgage rates over the next 12mths. The results show a significant ‘hawkish’ shift with an outright majority of consumers now expecting rates to rise.”
Westpac put this move higher in expectations starkly in contrast noting: “The Feb results are the most hawkish since Aug 2011, the tail-end of the RBA’s last tightening cycle when the mortgage rate hit 7.8%.”
This is not good news for an economy that desperately needs a lower dollar and more consumer spending.
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