Buyer confidence at new lows as experts query RBA’s strategy

Consumer confidence has crashed to the lowest level in four years after a series of interest rate cuts by the Reserve Bank.

Consumer confidence has crashed to the lowest level in four years after a series of interest rate cuts by the Reserve Bank enacted to boost household spending, leading top economists to question the effectiveness of the policy.

Westpac’s closely watched monthly confidence barometer dropped 6 per cent over the month to October, dragged down by a sharply gloomier outlook among respondents about how the economy will be tracking in five years.

“Consumers are looking behind the reason for the rate cut and arguably the absolute level of rates and getting nervous,” said Westpac chief economist Bill Evans.

The index has now been in the range where pessimists outnumber optimists for three of the past four months. “It is to be hoped the signals from this survey highlight the possible unintended consequences that may result from the option of resorting to negative interest rates,” Mr Evans said.

Following an unexpected drop in economic growth in the year to June, the RBA board trimmed the cash rate to 0.75 per cent last week — the third rate cut this year — as part if its effort to boost stagnant household consumption and get the jobless rate below 5 per cent.

Warren Hogan, a senior economist at UTS business school, said three cuts had created a “laundry list of unintended consequences”, including sending an ominous signal to households “who might wonder why rates were even lower than ‘emergency levels’ of a few years ago”. The index revealed households were less likely to buy whitegoods and dwellings, and less confident about the outlook for their own finances, in October than a month earlier. Sharp falls in the sharemarket last week and escalating trade tension between the US and China may have contributed to the result.