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Bill Evans – an analyst at Westpac – offered his take on Wednesday’s disappointing release of the Westpac-Melbourne Institute Index of Consumer Sentiment, which fell 5.5% to 92.8 in October from 98.2 in September.

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This is the lowest level of the Index since July 2015. The Index has fallen by 8.4% since the Reserve Bank started cutting rates in June and is down by 8.6% over the last year.  

The fall comes despite a further 25bp cash rate cut from the RBA at its October meeting – the third rate cut since June taking the cash rate to a new historical low of 0.75%.
This result will be of some concern to the monetary authorities. Typically, an interest rate cut boosts confidence particularly around consumers’ expectations for and assessments of their own finances.
The Index has now been in the range where pessimists outnumber optimists for three of the last four months. As discussed, the October update marks the lowest read since July 2015, when a sudden 30% plunge in the Chinese share market sparked concerns around the Chinese economy and resulted in a 3.3% fall in the Index. However this was more than reversed by an 8% recovery in the Index in the following month.
Global events have, again, contributed to the weak result in October with the deterioration in US-China trade relations weighing on the global economy amid speculation of a recession in the US. In fact, during the week of the survey the US share market fell by 2.6% and the Australian market was down by 3%.