The Reserve Bank’s decision to raise the official cash rate by 25 points to 3.25 per cent has not been received well by retailers.
After publicly stating last week that consumers were still not confidently and consistently in the retail market, the Australian Retailers Association (ARA)’s executive director Russell Zimmerman said yesterday’s rate rise could have a damaging effect on Christmas retail trade.
"This premature rate rise is all too familiar to retailers who warned the RBA not to raise interest rates in early 2008 because retailers could see consumers were reducing spend. The RBA ignored this advice and what followed was over 12 months of reduced consumer demand.
For most of this year, retail recovery has been quite patchy with increased monthly trade in January, March, April, May and August but decreases in February, June and July.
"Retailers would’ve liked to have seen a few more months of solid trade growth before any interest rate rises and they will definitely not welcome any interest rate hikes in the lead up to Christmas,” said Zimmerman.
Usually changes to interest rate take between three to six months to impact the retail market, which means any outcome from the rate rise could hit retailers just in time for Christmas.
Clothing and footwear retailers, as well as restaurants, cafes and take-away outlets are expected to be hit the hardest by this premature interest rate rise. These are areas were consumers traditionally tighten their spending if they are feeling financial pressure.
"Retailers are urging the RBA to carefully rethink their interest rate strategy and to hold interest rates between now and Christmas as consumers are still extremely sensitive to any financial or economic pressures.
"This rate rise will take cash away from consumers, damaging retail recovery and stopping funds from flowing through the rest of the economy," concluded Zimmerman.