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| Rate shock draws anger |
   
Posted Date: 07/02/2012
By Robert Stockdill
Retail groups responded to The Reserve Bank's decision to keep interest rates on hold with a spirited attack on the bank board’s policies.
Currency markets and economists were almost unanimously expecting a 0.25 per cent cut in the cash rate - and the federal treasurer Wayne Swan must have been as surprised as anyone given he spent much of Monday warning retail banks to pass on the Reserve Bank’s cut.
But no-one reacted in any way as strongly as the Australian Retailers Association executive director Russell Zimmerman - not even his contemporary at the National Retail Association, Gary Black.
Zimmerman said the bank’s board was out to “kick retailers while they were down” as if a tiny reduction in mortgage interest rates which would hit some consumers’ pockets in 60 to 90 days would solve retailers’ problems overnight.
He said the decision created the “perfect storm for job losses amid declining retail trade and increased cost of living including mortgage stress”.
The fact is, mortgage interest rates have dipped marginally following two successive rate cuts by the Reserve Bank. Far more stress is hitting consumers from soaring energy bills, with more to come when the Federal Government introduces new taxes later this year.
“Over the past 12 months there have been more store closures and retailers going into administration than I’ve seen over the past 30 years. This has a devastating impact on jobs – including employment for those who need the flexible working environment retail offers such as students and working parents,” Zimmerman said, again as if to suggest interest rates was the primary cause of that problem.
Black stopped short of demanding the bank cut the rate at its next meeting in March and described the decision as “disappointing” after ABS figures released on Monday showed “depressed trading conditions” over Christmas.
“This announcement by the RBA will disappoint retailers relying on a boost to consumer spending, and a better 2012. A rate cut would have been just what they needed,” Black said.
AAP economist Garry Shilson-Josling said the tone of the Bank’s statement suggested Tuesday’s decision was “by no means cut and dried”.
RBA governor Glenn Stevens’ traditional post-meeting statement painted a mixed picture of both the global and domestic economies.
Europe was weakening with the risks bunched on the downside, but the US was emerging from a mid-2011 soft patch and enjoying a moderate expansion, he concluded, while China’s economy had slowed a little but remained robust.
“Locally, the economy was patchy but growth was "close to trend" - a term never defined by the RBA but thought to refer to the long-term average gross domestic product (GDP) growth rate of three to 3.5 per cent - although the labour market had softened,” Shilson-Josling wrote.
“Underlying inflation was close to the middle of its two to three per cent target range and expected to stay in the band for the next one or two years.
“In the end, with lending and borrowing rates around normal, the board decided the case for cutting the cash rate was not strong enough to prompt the move.”
Said Stevens: "With growth expected to be close to trend and inflation close to target, the board judged that the setting of monetary policy was appropriate for the moment.
"Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy," he said in the statement.
Meanwhile, Australian retail consultant and commentator Peter James Ryan, a columnist with Inside Retail, backs the board’s decision.
“The mining industry is strong. Our current account is in reasonable shape. Our government debt is manageable albeit higher than it needs to be due to unnecessary stimulus. Consumers are employed and spending.
“What is the justification for a rate cut?”
Ryan says Australia’s economy is strong and “almost bullet proof”.
“We are the richest country in the world on an asset basis with a small population, relative full employment, growing household income, low inflation and record household consumption up more than seven per cent.
“Retail was an all time record at a gross dollars level this Christmas and rolling MAT at retail is more than up three per cent year on year according to ABS,” said Ryan.
“If you add in virtual retail (not tracked) you get a number of around plus five per cent for all retail (physical and virtual combined). Even Citibank, which is very conservative, acknowledges that household consumption is up seven per cent, retail up three per cent, internet retail up 28 per cent and travel expenditure up two per cent.
“The problem for retail is not sales or the consumer. It is retailer confidence driving unsustainable discounting leading to double edged margin erosion from increasing costs and deflation.”
He said constant statements by retail groups was causing retailers to become more and more pessimistic, and driving them to discount even further. |
Wednesday, February 08, 2012 by Paul S
It would appear our retail associations are more about grabbing headlines than actually performing a real function. I think it's about time we stop using official interest rates as a scapegoat for flawed business models.
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