After holding off on many anticipated rate cuts, the Reserve Bank has finally made the decision to lower the cash rate by 0.25 per cent to 2.75 per cent.
RBA governor Glenn Stevens, recent data on prices confirm that inflation is consistent with the target and, if anything, a little lower than expected.
“The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today's meeting the Board decided to use some of that scope,” he said.
“It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.”
Retailers believe this will help ease pressure off retailers and encourage further spending.
“With retail sales showing no sustained growth over the past few months amid weak consumer sentiment, the RBA has provided some relief to retailers,” Russell Zimmerman, Australian Retailers Association executive director, said.
“Consumers have also been granted some relief from their household budgets as they continue to grapple with covering expected increased utility costs and tax hikes.
“While rate cut decisions are no silver bullet for retail sales, the sector will at least be hopeful some of the financial pressure on shoppers eases, and this will make way for growth and employment within the $258 billion industry.”
The real results of the cut however rest in the hands of the banks. It has been 18 months since the major four banks all passed on a rate cut in full to consumers.
National Retailers Association chief executive officer Trevor Evans said the RBA had recognised the need for a boost to consumer confidence and spending, which would flow through to improved economic conditions and employment outcomes.
“The last time the four major banks passed on a cut to the cash rate in full was in December 2011 – 18 months ago,” he said.
“Since then, all reductions in rates have been partly withheld by at least one of the major banks, and in most cases several or all of them. The time has come for consumers to receive a full rate cut.
“The RBA has recognised the need for a boost to economic conditions. “Retail trade data released by the ABS this week showed conditions remain soft for store owners, particularly in discretionary spending areas.”