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Consumer confidence rises despite rate hike

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Consumer confidence increased by 1.7% in October despite the Reserve Bank's decision to raise interest rates this month, a new report has claimed.

The Westpac-Melbourne Institute Index of Consumer Sentiment, gauged after details of the Reserve Bank's 0.25% interest rate hike were released, rose from 119.3 in September to 121.4 in October.

Westpac's Chief Economist Bill Evans said the result should come as no surprise. He continued, "Evidence from the last tightening cycle, which began in May 2002, points to sentiment being resilient to rises while rates remain very low."

Evans added that the response to the rate hike suggests that the next 0.25% increase, which Westpac predicts to follow the next board meeting of the Reserve Bank on 3 November, is also unlikely to have any marked impact on sentiment.

However, there were a number of other factors involved in the strong showing of consumer confidence. Since the last survey the share market has risen by 7.2%, petrol prices have fallen by 7.5%, and the Australian dollar has increased a further 7.5% to be 50% above its lows of around a year ago.

Evans continued, "The resilience of the labour market has also been buoying sentiment. The surprise fall in the unemployment rate from 5.8% to 5.7% in September strengthened households' convictions that their jobs are safe."

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