Contact Us:

1300 646 536

Welcome to the Business Insights Newsletter

Is the Retail Industry overreacting to the Interest Rate Hike?

October 9th, 2009

Category: Retail Business News

Historic Bank on Corner

Historic Bank on Corner

There is reporting that the Retail Industry is not pleased by the interest rate raise to 3.25 percent from 3 percent which happened October 6th at the Reserve Bank of Australia meeting. In the newsletter Inside Retailing Russell Zimmerman stated that he thought the rate hike was too soon and could impact Holiday sales for retailers.

Retail Industry gives feedback

“Usually changes to interest rate take between three to six months to impact the retail market. So, the damage could hit retailers just in time for Christmas.” – Russell Zimmerman ARA Executive Director

Well it is mid October and Christmas is less than 3 months away so it does seem unlikely that this will have a major impact on holiday spending.

Is Mr. Zimmerman serious in his appraisal that this is truly bad news, being a mouthpiece for members of the ARA, or is this an attempt to quell future rate increases that may come in November and / or December?

Rate hike not unexpected

But this rate hike does not seem to be unexpected but just maybe a bit earlier than hoped.

Previously JP Morgan chief economist Stephen Walters had said that the RBA would raise rates at this meeting on strong retail numbers previously.

National Australia Bank chief economist Robert Henderson had said:

“A November rate hike would likely be followed by another in December, leaving rates 50 basis points higher by the end of 2009.”

Other Industries than Retail Respond

Not only was the raise from 3% to 3.25% stated to be unwelcome by many in the retail sector but also from the car industry that sees the recovery as starting but not fully developed.

The Federal Chamber of Automotive Industries said the increase in the interest rate was premature.

“Economic stimulus has resulted in positive business sales but private buyers need the confidence to return to showrooms in larger numbers,” said chamber chief executive officer Andrew McKellar.

The chamber gave a sales figure that fell 3.5 per cent in September as a reason for the beliefs.

Future Actions by the RBA

The RBA is scheduled to have meetings in November and December. It is entirely possible that there will be another adjustment at either or even both of these meetings. But again maybe the RBA was hoping to slow the overcooking home price market now and bring some stability in price adjustments to the markets during the run-up to the holiday season by limiting changes then. Or it may be looking to reduce the amount of time that the end of some of the small business stimulus package overlaps with 49 year low interest rates.

Affect on Retail Businesses

Some in the retail field have stated that the interest rate change has a huge affect on consumer spending and quite directly. But while variable rate mortgages are common, Oceanic consumers will not necesarily retreat from spending on an expected quarter point increase from a 49 year low.

Most government inputs are a bit slow, indirect, and even uncontrollable.

An interest rate hike is one of these.

Myer CEO Bernie Brookes has said at a Press Conference that this rate rise would probably NOT have “any impact on our sales growth line”

A Source of Pride?

“Australia’s performance in the middle of this global recession has been the best of all advanced countries and one of the reasons for that has been the stability in our financial system.” – Treasurer Wayne Swan

And this adjustment is no different.

It is a small adjustment, might help some markets like housing prices from overheating, and has already made the Australian Dollar stronger in world markets.

A strong Australian Dollar has many good, and some bad effects on the Australian economy possibly beyond what a quarter percent interest rate increase has.