Consumers Take Interest In Better Deals

Sydney Morning Herald

Thursday December 13, 2007

Jessica Irvine Economics Correspondent

CONSUMERS are learning to shop around for the best deal on credit cards in response to rising interest rates.

Before the Reserve Bank's latest increase to the official cash rate in November there was a spike in both the uptake of new credit card limits and the cancellation of old credit limits, suggesting borrowers were swapping for a better deal.

Consumer confidence is also proving resilient in the face of higher interest rates. The Westpac-Melbourne Institute survey of consumer sentiment rebounded 1.8 per cent this month, to be 5.9 per cent higher than a year ago. This followed a 4.5 per cent fall last month in immediate response to the Reserve Bank's 0.25 percentage point interest rate rise on November 7.

The biggest swings in confidence were by voting intention, with Labor voters 16 per cent more confident than the previous month, and Coalition voters 16 per cent less so.

"This is a solid result," the chief economist at Westpac, Bill Evans, said. "It comes at a time when petrol prices have increased by 8.3 per cent over the month, global capital markets have been in turmoil and major bank executives have been warning of the need to pass on higher funding costs to borrowers."

He said the Reserve Bank would continue to be troubled by inflation and would raise interest rates again next February.

Meanwhile, figures on personal finance transactions in the month before the latest interest rate rise suggest consumers are finding ways to adapt to higher rates by swapping to lower rate products.

The uptake of new and increased credit limits on credit cards jumped 39 per cent to a record $2.6 billion, largely offset by a rise in the value of credit cancelled during the month, up 47 per cent to $2.2 billion.

An economist at CommSec, Martin Arnold, said consumers were getting more savvy about their finances to deal with rising interest rates, petrol prices and food prices. "People are using especially credit cards more effectively trying to control costs," Mr Arnold said.

A decrease in the number of people relying on cash advances was also a sign of better management of household finances, he said.

© 2007 Sydney Morning Herald

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