Interest rate cut welcomed but confidence may take time to return

Posted by Daniel Palmer on 2nd September 2008

The Reserve Bank of Australia today reduced the cash rate by a quarter of a percentage point to 7.00 per cent, providing some welcome relief to retailers.

Leading retail industry bodies the Australian National Retailers Association and the Australian Retailers Association have both warned, however, that it will take time for consumer confidence to return. “… nobody should assume that Australians will race out tomorrow and start spending up,” ANRA CEO Margy Osmond said. “This rate cut will take a while to filter through and consumers will be watching to see if the banks follow suit before they regain their confidence.”

“Retail spending has been flat now all year and we expect this trend will continue well beyond 2009,” Ms Osmond added.

ARA Executive Director Richard Evans said that the cut won’t be felt for at least three to four months, but possibly much longer. “The current retail cycle is at its lowest and we hope that today’s rate cut will help start the upwards trend for consumer spending after successive months of stagnant and declining growth. It may take up 18 months for the damage caused by rate rises to be reversed and the economy to recover to growth levels similar to late 2007,” he suggested. “Let’s hope the RBA has seen the damage and decides to give the economy more relief and cut the cash rate again in October. The retail sector is the barometer of the economy and if it’s struggling it’s a sure sign times will continue to toughen for the broader economy as ten years of economic sunshine come to an end.”