- Bill Evans, Westpac's chief economist
Australians appeared to feel much more upbeat on the economic outlook in May, after the Reserve Bank of Australia cut the benchmark interest rate for the second time this year and the government released a budget that included unexpected tax relief for small businesses. The Westpac-Melbourne Institute Consumer Sentiment Index surged 6.4% to the highest level in 16 months of 102.4 in May, up from 96.2 in April. A figure below 100 shows the majority of consumers are pessimistic, while a reading above 100 indicates a majority of optimists. On May 5 the RBA lowered the cash rate by 25 basis points to a all-time low 2.0% in an attempt to prop up demand in the investment-drained economy. Minutes from the bank's May meeting showed that the central bank keeps door open for more easing.
Meanwhile, a separate report showed inflation expectations in Australia rose again in May, according to the Melbourne Institute. The expected inflation rate climbed by 0.2 percentage points to 3.6% in May up from 3.4% in April. The Reserve Bank of Australia said in its quarterly Statement on Monetary Policy expectations for inflation were cut. In February, the RBA saw risks that inflation might exceed its 2-3% inflation target band in the years out to mid-2017. Core and headline inflation is now expected to be consistent with that range.
© Dukascopy Bank SA