Westpac–Melbourne Institute Consumer Sentiment slips 2.6% to 90.5 in February.

• Muted response compared to previous rate hikes.
• Current conditions and medium-term outlook weaken; year-ahead views stable. 
• Over 80% expect interest rates to rise further in the next 12 months.
• Homebuyer sentiment sinks as price expectations hit new 15yr high.

Previous surveys showed a significant weakening in sentiment as a lift in inflation stoked fears that the RBA was about to raise interest rates. Those fears were realised in February. The RBA’s 25bp hike – the first in over two years – has put renewed pressure on finances, dented attitudes towards major purchases and raised concerns about medium-term prospects for the economy. That said, the impact on sentiment overall has been relatively mild. The 2.6% decline this month compares to an average 3.8% fall following cash rate rises historically. At 90.5, the Index level is also still well above the extreme lows sustained through most of 2022–2024.

Some of the muted sentiment response to the RBA rate hike likely reflects the fact that it was widely anticipated. The February survey detail also suggests the messaging around the decision was not quite as bad as some had feared. Responses over the course of the survey week show a slight improvement amongst those surveyed after the decision was announced.

Component-wise, the February sentiment decline centred on current assessments. Recall that the Index is a composite measure based on five sub-indexes: one tracking assessments of family finances compared to a year ago; two tracking expectations for family finances and the economy over the next year; one tracking expectations for the economy over the next five years; and one tracking responses to whether now is a good time to buy a major household item.