Consumer sentiment in Australia showed greater improvement in January following a brief pause in the central bank’s rate hikes, despite an overall gloomy economic outlook, according to findings from a private survey published on Tuesday.

There was a 5% rise to the Westpac Melbourne Institute Consumer Sentiment Index this month to a reading of 84.3 from 80.3 the previous month. This represents the index’s largest increase since April 2021.

However, Westpac analysts cautioned that the sentiment boost would likely only be temporary as the Reserve Bank of Australia didn’t hike rates over the month as no meeting was scheduled, investing.com reports. Australia’s broader economic conditions are still weak, and although there has been an improvement in consumer sentiment, the figure remains near all-time lows.

“We should be cautious about reading the January sentiment rise as part of a continuing trend. Westpac expects the Reserve Bank Board to continue with its interest rate policy tightening at its next meeting on February 7… Sentiment is still depressingly low,” said Bill Evans, Chief Economist at Westpac.

The central bank is forecast to increase rates by an additional 25 basis points at next month’s meeting, as inflation in Australia stands at more than three-decade highs. Soaring inflation and interest rates hammered consumer sentiment last year as household spending was impacted by tighter monetary conditions.

According to Westpac, interest rates will likely increase by another cumulative 75 basis points before the central bank eases up. Inflation is also forecast to decline throughout this year.

In addition, mortgage holder confidence showed improvement in January amid a degree of relief over no rate rise. Sentiment regarding the labour market was also upbeat. The country’s labour market stayed tight last year and was a key contributor to household spending remaining steady, despite lagging wage growth.