Australia's consumer confidence remained almost unchanged in May as the Reserve Bank's surprise rate cut failed to offset the negative sentiment from the recent developments in Europe, a key survey revealed Wednesday.
The Westpac-Melbourne Institute Index of Consumer Sentiment increased just 0.8 percent in May, to 95.3 from 94.5 in April.
"This is a disappointing result," Westpac's Chief Economist Bill Evans said. "It follows a surprise 0.5 percent cut in the official cash rate by the Reserve Bank and extensive media coverage that the unemployment rate had fallen from 5.2 percent to 4.9 percent."
In the Minutes of this month's Policy Board meeting, RBA said a reduction of 50 basis points in the cash rate was necessary in order to deliver the "appropriate level of borrowing rates."
According to Evans, the factors that appeared to have offset these positives were a degree of disappointment amongst households that the standard variable mortgage rate was reduced by 'only' an average of 0.37 percent and the increasingly disturbing news around Europe.
The latest Federal Budget also failed to boost consumer mood, though it aims to take the budget back to surplus in 2012-13 by cutting defence expenditure and spending on foreign aid.
In this budget, the government plans to redirect the funds for company tax cuts to families in a way that also helps the economy.
However, according to the Westpac-MI survey, only 9.9 percent of respondents indicating that the Budget would 'improve' family finances while 36 percent indicated the Budget would 'worsen' family finances.
"It is reasonable to conclude that recent Budgets have not been constructive for confidence although the 2012-13 Budget has been a little more positive than last year," Evans said.
The economist noted that there is ample scope for RBA to further cuts the cash rate. "It is our current view that the Bank will wait until July before it cuts again but developments overseas along with today's evidence that the recent cut has had little impact on confidence could easily see the Bank bring that decision forward to the next Board meeting in June", Evans said.
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