Australian consumer sentiment slumped to its lowest in more than 14 years in March as rising interest rates and falling share values shook confidence in the economy, a survey showed on Wednesday.
The scale of the fall could mean the Reserve Bank of Australia (RBA) has finally convinced the consumer of its determination to cool the red-hot economy, analysts said, relieving it of the need to hike even further.
The Westpac-Melbourne Institute consumer sentiment index fell 9.1 percent in March to 88.6, the lowest reading since September, 1993 and 23.3 percent lower than in March last year.
The index posted a three-month fall of 21.2 percent, the sharpest three-month fall since the index began in 1975.
"This is an extraordinarily large fall," said Westpac chief economist Bill Evans.
The survey of 1,200 consumers was taken amid carnage in equity markets. By the end of last week, Australia's main stock index had fallen by 19 percent since the start of the year.
Last week also saw the central bank raise its benchmark interest rate a quarter-point to a 12-year high of 7.25 percent. That was the second rise in as many months and the fourth rise since August, as the central bank repeatedly warned that domestic demand needed to slow substantially.
Now, it may have made its point.
"In any rate hike cycle there will be one move, usually the last, when the effect is substantially greater than the effect of any previous move," said Westpac's Evans.
"This result points to a similar effect for the March move and probably signals that the Reserve Bank has tightened for the last time in this long cycle," he added.
The financial market has all but priced out the risk of a further rise to 7.5 percent and instead is toying with the idea of rate cuts within the next 12 months.
Not surprisingly Wednesday's survey showed confidence of mortgage-holders fell by a steep 12.1 percent in March, to be 31.5 percent down over the year. Commercial banks have also raised their mortgage and lending rates by even more than the central bank as the global credit crunch pushed their funding costs sharply higher.
On Tuesday, ANZ Banking Group and St George Bank both raised their standard variable mortgage rates by 35 basis points to 9.37 percent.
Government figures out on Wednesday showed growth in personal borrowing had already ground to a halt in January as households paid off revolving debt like credit cards while shifting their mortgages to fixed-rate terms.
"Official interest rates are now restrictive, but for consumers and business, borrowing costs are close to oppressive," said Stephen Koukoulas, global strategist at TD Securities. "Consumer demand will likely flag under the weight of record high household debt and a record high debt servicing burden."
The March survey showed consumers were reconsidering their spendthrift ways. A measure of whether it was a good or bad time to buy major household items dived 10.9 percent.
And a quarterly measure on whether it was a good time to buy a car fell by 22.5 percent, to hit the lowest level since it was first included in 1995.
"The next move in Australian interest rates will be down," concluded Koukoulas. "The first cut could be as soon as the third quarter, though ongoing high inflation may see the RBA hold off until late in the year."