The Westpac Melbourne Institute Index of Consumer Sentiment fell by 6.8% in May from 99.7 in April to 92.9 in May. The sharp fall in the Index is clearly indicating an unfavourable response to the recent Federal Budget. This puts the Index at its lowest level since August 2011, before the Reserve Bank began its recent rate cut cycle. Since November 2011 rates have fallen from 4.75% to 2.5% and the Index is now back below pre-rate-cut levels.

The latest long range forcast from Westpac Economics is for Australian financial markets, the relative stability of 2014 will transform into considerable volatility from 2015. The AUD and interest rates will be on the rise (fixed rates lead RBA rates by around six months), and equity and property markets will be buoyed by confidence in the global developments we anticipate during that period. The AUD will once again “flirt” with parity. The year 2016 will continue to see growth and asset markets supported by global developments. Reversals, firstly in asset markets and then in aggregate demand, will emerge through 2017 and 2018.

Australia is experiencing one of the longest chapters of interest rate stability in decades, the Reserve Bank of Australia (RBA) decided to keep the cash rate at 2.50 per cent for May.

This is the 9th consecutive month that the RBA the cash rate will remain at an all-time low to help combat the effects of a high Australian dollar and the growth of non-resource sectors.

We are experiencing the lowest interest rates for years and on the average home loan of $300,000, mortgage payers have experienced an estimated $6,000 extra in the yearly household budget.

Some have chosen to forgo the reduction and get ahead by taking advantage of the opportunity to pay extra capital off the loan putting them in a strong position to face the future.

However the saving have stimulated consumer spending for some people by creating a certain perception of wealth amidst homeowners, the Reserve Bank believe.

This perception is further supported by rising house prices and a steady turnover in the property market.

Yet if overall credit were the indicator of stimulated spending, the figures are not adding up. There has been a decline in Credit Card applications as well as Personal Loans. Home Loans have remained strong however the First Home Buyer applications have declined showing that housing affordability is still a problem for younger people