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Interest rate rise now in doubt

THE Westpac-Melbourne Institute Index of Consumer Sentiment plummeted 9 per cent to 101 in February, putting further interest rate rises in doubt.

The index had reached 111 in January which was its highest level since 1993.

By contrast, the February drop was the biggest fall in consumer sentiment since a response to a 2.75 per cent increase in interest rates in January 1995.

Westpac has now re-evaluated its stance on increases in interest rates.

“This evidence clearly puts Westpac’s forecast that the Reserve Bank will raise interest rates on two occasions by 0.5 per cent beginning in the first week of April in doubt,” Mr Evans said.

“As the first read on consumer sentiment since the Reserve Bank raised interest rates by 0.5 per cent, this fall is clearly principally in response to the interest rate rise,” Mr Evans said.

“This survey indicates unusually high sensitivity of consumers to interest rates suggesting that other factors may also have impacted confidence.

“These may include the resurgence of news on union disputes, concerns regarding the GST and the persistent weakness of the Australian dollar,” he said.

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