Retailers Call For Interest Rate Rise To Be Deferred

Retailers Ask Reserve Bank to Defer Interest Rate Rise

The National Retail Association (NRA) is Australia's largest and most representative retail organisation with over 3500 members and affiliates located across all Australian states and territories. Its membership includes most of Australia's national retail chains.

NRA has expressed its concern to the Reserve Bank about making a determination on the level of interest rates at its February 2, 2010 meeting before December 2009 retail trade data has been released.

NRA's Executive Director, Gary Black says that "any Reserve Bank determination about further interest rate rises should not be made until the Bank has fully considered the implications of the December Retail trade data."

The December retail trade data will not be available until February 4, 2010.

Mr Black says that "if this means that in order to fully inform itself on the state of the economy or of the retail sector the Reserve Bank has to wait for its March meeting to decide on the level of interest rates, than this is the most appropriate course of action given that December retail trade data is of exceptional significance to the industry in that it represents, for many retailers, more than 20% of total annual turnover."

NRA points out that while November ABS Retail Trade data for November 2009 was unexpectedly strong, retailer feedback from national chains suggests that trading conditions in December and January were soft and it is likely that the December 2009 ABS Retail Trade data will show a decline in turnover when compared with December 2008. In the circumstances the prudent course would be for the Reserve Bank to defer any decision to increase interest rates until its March 2010 meeting when it will be better informed on retail trading conditions.

Such a decision is also sensible because February is the weakest trading month of the year for most retailers and a further rate rise at the start of February will further depress trading conditions impacting negatively on retailer profitability and employment.

ABS Retail Sales data (original) shows that February sales do not represent much more than 7% of total annual turnover:

Feb-05 Feb-06 Feb-07 Feb-08
7.24% 7.12% 7.10% 7.43%

NRA also notes that the Reserve Bank itself has acknowledged that a further interest rate rise in February is not an imperative given that the current level of housing loan rates and business loan rates are indicative of an official cash rate of 4.75% which is close to the "desired" neutral setting of 5%.

In this regard the Reserve Bank has stated* that it "takes account of the changing relativities between the cash rate and other interest rates when setting the cash rate", and that "other things equal, if interest rates in the economy are rising relative to the cash rate, there is less need for the cash rate to rise". The Reserve Bank accepts that since the start of the financial crisis the margin by which housing and business loan rates exceed the official cash rate has increased by 1% thus generating an indicative official rate of 4.75% (in lieu of the actual rate of 3.75%).

*(Address by Ric Battellino, Deputy Governor, on 16 December 2009 to the Australisian Finance & Banking Conference)

In the circumstances Mr Black says that "there are substantial grounds upon which the Reserve Bank can elect to proceed cautiously on February 2 and place interest rates on hold at least until the March meeting."

Mr Black also urged the Reserve Bank to be wary of measures of consumer confidence in formulating a view on interest rates. Mr Black said that "there is a weak correlation between measures of consumer confidence and retail spending."


Gary Black
Executive Director NRA
M. 0413 046 614
E: [email protected] www.nra.net.au
NRA Helping Australian Business Grow.

SOURCE: National Retail Association