Consumer confidence falls despite steady interest rates

Consumer sentiment has dropped by five per cent this month despite the Reserve Bank's decision to keep interest rates on hold.

According to an index by Westpac and Melbourne Institute, consumer sentiment has fallen from 119.2 last month to 113.2 in September following two consecutive months of steady increments.

However, Westpac's chief economist Bill Evans suggested the result was more of a reflection of the positivity generated by the RBA's surprise decision not to hike rates last month.

"It appears that the August reading may have overstated confidence," he said. "It is probable that the sharp 5.4 per cent jump last month was reflecting a strong relief rally, when contrary to media speculation, the Reserve Bank did not raise interest rates."

Mr Evans also noted that the September levels of the index tend to be a more accurate representation of the level of consumer confidence.

Earlier this month, the RBA kept the official cash rate at 4.5 per cent for the fourth consecutive month.

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