Consumer confidence is beginning to improve, but economists warn that the federal budget and possible further interest rate cuts by the RBA hold the key to a solid recovery.

The latest ANZ Roy Morgan confidence index rose 0.5 per cent in the week ending March 22, building on a similar rise the previous week.

The rise was driven by people feeling more upbeat about the economic outlook for the next five years.

But ANZ chief economist, Warren Hogan, says confidence levels remain below their long run average levels.

He sees the next key tests for consumer confidence as another cut to the cash rate by the Reserve Bank in coming months and the May federal budget.

“The response of confidence to these two key events will be important as to how consumer spending evolves into the second half of 2015,” he said.

Money markets expect the Reserve Bank to cut the cash rate to a fresh record low in April or May.

AAP