Australia's consumer sentiment improved in August as households became less pessimistic about their finances following the Reserve Bank's latest interest-rate decision, though confidence remained weak overall, according to a survey by Westpac and the Melbourne Institute published Tuesday.

The Westpac-Melbourne Institute Consumer Sentiment Index rose 6% to 88.9 in August from 83.9 in July.

Consumer confidence remains weak despite a modest improvement, with pessimism still outweighing optimism amid concerns over household finances and the Middle East, said Luci Ellis, chief economist at Westpac.

Most Australians continue to expect mortgage rates to rise further, although the latest central bank meeting appears to have reduced uncertainty and increased expectations that rates will either hold steady or decline.

The "family finances vs a year ago" sub-index rose nearly 13% to 80 in August, the greatest improvement among sub-indices despite higher fuel prices.

Consumer expectations for household finances and the wider economy improved in August, with optimism about finances over the next year rising to 98.2, while 12-month and five-year economic expectations increased 5.8% to 82.8 and 3.2% to 89.8, respectively.

Australians are feeling more confident about making major household purchases, but growing concerns about unemployment are tempering the improvement in consumer sentiment.

Housing sentiment improved as the softer interest-rate outlook lifted the "time to buy" index over 12% to 95.7, though it remains below its long-run average of 119.

The Reserve Bank is likely to keep the cash rate on hold at its September meeting, with limited new inflation data and a softer-than-expected labor market giving policymakers little evidence that upside inflation risks have materialized.