Australia | Feb 11 2010
By Chris Shaw
In the February Westpac-Melbourne Institute Consumer Sentiment survey there was an extra question referring to expectations for mortgage interest rates over the next 12 months and as Westpac senior economist Matthew Hassan notes, responses show a clear view rates will continue to increase.
Hassan points out 93% of respondents expect mortgage rates will continue to rise over the next year, while 61% see the cumulative rise in rates as being greater than 1.0%. This would put the standard variable rate at more than 7.65% by February next year, which would put the rate above its 15-year historical average of 7.5%.
The survey results imply consumers in Australia are now more hawkish on interest rates than current market pricing, Hassan pointing out futures pricing for the official cash rate implies a cumulative increase of just less than 1.0% by next February. Westpac is forecasting rates will increase by 0.75% in the next 12 months.
The consumer view was widespread as Hassan notes every sub-group in the survey expected rates would increase by more than 1.0%, though those in older age groups tended to be more hawkish overall. There were some state-based variations with more than 95% of those in the “resource states” of Queensland and Western Australia expecting further rate hikes but slightly lesser numbers with such an expectation in Victoria and South Australia, while New South Wales had the highest proportion of respondents expecting rates would rise by more than 1.0%.
What the responses suggest in Hassan's view is the non-decision with respect to interest rates made by the Reserve Bank of Australia (RBA) at its meeting earlier this month is not being paid a lot of attention, whereas commentary from the RBA and elsewhere warning of the likelihood of further rate increases is being heeded by consumers.
One point made by Hassan is while consumer sentiment fell slightly in February the fact it remains as high as it is, and the February reading of 117 is 15% above its long-term average, implies consumers feel they are well placed to handle any rate increases that may come in coming months.