Cash rate cuts fail to lift Aussie confidence

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Recent interest rate cuts by the Reserve Bank of Australia (RBA) have failed to lift consumer confidence, says Westpac.

The RBA reduced the cash rate by 25 basis points in November and again, by the same amount, in December, citing global uncertainty and a cautious consumer as reasons for easing monetary policy.

But research by Westpac, released yesterday, shows Australians are still pessimistic about their financial future.

The Westpac/Melbourne Institute of Consumer Sentiment Index rose by 2.4 per cent to 97.1 index points in January, from 94.7 points in December.

This was a better result than December's 8.3 per cent fall, but the index remains below the neutral mark, indicating pessimists outnumber optimists.

The index has now been below the neutral mark for two consecutive months.

Westpac chief economist Bill Evans said the result was disappointing.

"Despite the Reserve Bank having cut the overnight cash rate by a total of 50 basis points, with the major banks passing on the full cut to variable rate mortgage borrowers, the index is still slightly below the level which it registered before the first rate cut," he said. "In effect, at this stage, the rate cuts have been unable to raise consumer confidence."

Westpac says it expects the RBA to cut the cash rate by a further 25 basis points, to 4 per cent, when it next meets on February 7.

"Even at four per cent, there is ample scope for the (RBA) Board to go further given the benign outlook for inflation," Mr Evans said. He said he expected another cut in May.

- AAP