CONSUMER confidence rose in October after the Reserve Bank of Australia's (RBA) surprise decision not to lift its benchmark interest rate earlier in the month, a survey shows.
The Westpac-Melbourne Institute Index of Consumer Sentiment rose 3.3 per cent in October to 117.0, well above the 100 level that separates optimists from pessimists.
This compares to 113.2 in September and puts the index 2.5 per cent above its 2010 average and 15 per cent above its March to May low point in the year.
"There were many reasons to expect the index to bounce back from the surprise five per cent fall in September," Westpac chief economist Bill Evans said in a statement.
"The decision by the Reserve Bank to keep rates on hold at the October board meeting would have buoyed consumers.
"Press speculation was very strong that rates were about to rise with the possibility of (interest rate) 'top ups' from the banks."
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The RBA surprised many on October 5 by leaving the cash rate unchanged at 4.5 per cent for the fifth straight month.
Speculation that the bank would raise the rate to 4.75 per cent at that meeting ran fairly hot among economists, analysts and the media in the weeks leading up to the decision.
But Mr Evans said there was also enough volatility on the global economic scene to spook consumers during the month.
"The generally gloomy outlook for the US economy and Europe continues to get prominent exposure in the media," he said.
The data showed house prices were deteriorating, with a 1.5 per cent fall in the house prices on the three months to August.
The index measuring responses to "family finances compared to a year ago" fell 0.8 per cent, while the index tracking expectations for finances over the next 12 months fell 3.8 per cent.
A separate survey conducted by Westpac showed the proportion of respondents expecting house prices to rise has fallen from 70 per cent in July to 63 per cent in October.
"These contrasting effects might explain the divergence in the components of the index," Mr Evans said.
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