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Fed: Consumers happier as interest rates tumble

By Colin Brinsden, Economics Correspondent
10 Dec 2008 5:45 PM

CANBERRA, Dec 10 AAP - Big interest rate cuts, a huge cash injection from the government and tumbling petrol prices have bolstered the spirits of consumers.

And it is not just retailers that may benefit - demand for home loans has also increased, including from first-time buyers.

New data released on Wednesday showed a jump in consumer confidence and the first growth in demand for mortgages in nine months.

Treasurer Wayne Swan said the figures were "encouraging and heartening".

"The government is doing everything it possibly can to strengthen our economy in the face of the global financial crisis," he told reporters in Sydney.

"Therefore, it's pleasing today to see consumer sentiment figures which certainly do reflect a lift in consumer confidence."

The government started rolling out $8.7 billion of cash handouts to pensioners and low-income families this week as part of its $10.4 billion economic stimulus package.

By the end of this week, $5 billion in bonus payments would have been distributed, with the remaining $3.7 billion expected to be delivered by Friday of next week, Human Services Minister Senator Joe Ludwig said.

The Reserve Bank of Australia also has slashed its key interest rate by 300 basis points in the past four months.

The Westpac-Melbourne Institute consumer confidence index jumped 7.5 per cent in December and has risen more than 12 per cent in the past two months.

"The good news on interest rates is finally getting some traction," Westpac chief economist Bill Evans said.

The survey found confidence among mortgage-holders rose 11 per cent in December compared to 1.6 per cent for tenants, while Mr Evans said there was a "stunning" 28 per cent surge in respondents saying it's a good time to buy a major household item.

"The RBA would have been encouraged by the bounce in confidence which may underpin some expenditure over the critical Christmas holiday period after a clear period of retrenchment in recent months," RBC Capital Markets senior economist Su-Lin Ong said.

RBA governor Glenn Stevens indicated that further interest rate cuts could be on the way and that the government has scope to inject further cash into the economy at a dinner address on Tuesday night.

New home loans rose by a seasonally-adjusted 1.3 per cent to 48,299 in October, ending eight months of consecutive falls, Australian Bureau of Statistics data shows.

The housing finance report included a 5.9 per cent increase in loans to first time home buyers in October, making up 19.5 per cent of all mortgages and the highest level in six years.

Part of the government's stimulus package included the doubling of the First Home Owners Grant to $14,000 for established homes and a trebling to $21,000 for new properties.

Commonwealth Bank of Australia economist James McIntyre said while the data was a positive development, business confidence remained weak and was yet to take its toll on the labour market.

Official labour force data for November is released on Thursday and economists expect it to show the unemployment rate rising to 4.5 per cent from 4.3 per cent.

"Though significant stimulus has been delivered to date, we maintain that the RBA will cut further to ensure the economy gathers momentum through 2009," Mr McIntyre said.

Financial markets are all but pricing in a further full percentage point rate cut for when the RBA board next meets in February.