Westpac's Matthew Hassan reveals the massive number of Aussies that expect interest rates to lift over the coming year
A shock number of Aussies expect interest rates to be higher than they currently are in 12 months’ time after inflation picked up in recent months.
This is one of the revelations from the Westpac-Melbourne Institute Consumer Sentiment Index, which fell 3.5 per cent in October to firmly pessimistic levels as Aussies were rattled by recent uptick of inflation.
The survey, which was conducted between September 29 and October 3, also showed expectations of future interest rate decisions were different to what many had expected, according to Westpac senior economist Matthew Hassan.
“When asked specifically about expectations for mortgage interest rates (and) just over half of that subgroup expected rates to be higher in 12 months’ time,” Mr Hassan said on Business Now.
“Which is extraordinary compared to the readings we’ve had over the last couple of months where it’s been the other way around – with maybe 60 per cent plus expecting rates to move lower.”
He noted that this high number dropped after the Reserve Bank of Australia board voted to hold the cash rate at 3.6 per cent on September 30.
The RBA noted that it was “cautious” about inflation after financial conditions had eased since the beginning of the year.
After the RBA delivered its decision, about a third of those surveyed said they felt rates would lift in the coming year.
Mr Hassan said the RBA’s decision and subsequent commentary had a knock-on effect on consumer confidence.
“That seemed to be … why we’ve given up some ground that it’s much less clear cut that we’re going to see further easing from the RBA,” he said.
“That’s, in turn, seen consumers pair back their expectations for finances over the next 12 months.”
He also said there was a 50-50 chance of the RBA cutting rates in November and that the September quarterly inflation figure would be “absolutely crucial” for the coming policy decision.
Westpac’s survey also showed that consumer confidence fell to a six-month low in October, undoing the gains felt between May and October when interest rate cuts were delivering a clear boost.
It follows the Australian Bureau of Statistics’ monthly CPI data showing the annual rate rose to three per cent in August, up from 2.8 per cent in July.
This was the highest annual inflation rate since July 2024 when inflation was 3.5 per cent.
The RBA has cut rates three times by 0.25 per cent since February this year.
It follows the central bank holding the cash rate at 4.35 per cent for almost a year and a half to stamp out post-pandemic inflation.