By Grant Shepherd

SYDNEY: Yesterday the Reserve bank decided to raise official interest rates by a quarter of a percentage point to 3.5 per cent. Retail bodies are worried that this will stifle growth in the sector and damage consumer confidence.

According to the Australian National Retailers Association, this rate rise has the potential to subdue the already weak growth in the retail sector and may damage the confidence of consumers in the lead up to Christmas.

Although consumer confidence is still on the rise, Access Economics still expects only a minimal amount of growth in retail sales, with a 1 per cent rise in 2009-10 and 0.8 per cent in 2010-11. It expects stronger growth of around 3.7 per cent in 2011-12. “We have a long way to go before the retail sector is back to normal and consumers are sensitive to rate rises,” ANRA CEO Margy Osmond said.

According to Osmond, this Christmas may be much tougher for retailers due to the fact that last year fiscal stimulus packages were in effect. “This time last year, there were cash handouts washing through the economy, which helped prop up the retail sector leading into Christmas. This time around, retailers are relying on the fundamentals of the economy,” she said. “With unemployment and interest rates forecast to continue to climb, the outlook for the retail sector is pretty rocky for the next 18 months at least.”