Australian consumer sentiment saw a notable increase in August as concerns over interest rate hikes eased and government tax cuts, along with other cost-of-living measures, began to positively impact household finances, according to a survey released on Tuesday.

The Westpac-Melbourne Institute consumer sentiment index climbed 2.8% in August, reversing the 1.1% decline seen in July. Despite the improvement, the index remains subdued at 85, indicating that pessimism still outweighs optimism among consumers.

“August brought a small but welcome reprieve for consumers, as the Reserve Bank of Australia (RBA) kept interest rates steady and the benefits of tax cuts and other fiscal measures became more tangible,” commented Matthew Hassan, a senior economist at Westpac.

One of the survey’s highlights was a significant 11.7% surge in the measure of family finances, marking the largest monthly increase in nine years. This improvement was particularly pronounced among low-income households, according to Hassan.

At its August policy meeting, the RBA decided to maintain interest rates, following a debate on whether further hikes were necessary. The central bank has largely ruled out a rate cut in the near future, citing the gradual pace at which core inflation is expected to decline.

Market sentiment has shifted, with expectations now leaning towards potential rate easing by the end of the year, a stark contrast to recent speculations of a possible rate hike.

The survey also revealed a 14.9% decrease in the proportion of respondents who anticipate higher mortgage rates over the next 12 months.

Additionally, the index tracking whether it is a good time to purchase major household items saw a slight uptick of 0.6%. However, this index remains historically low at 82.6, reflecting continued caution among consumers when it comes to significant spending.