Monday, March 4, 2024

RBA cash rate pause at 4.35%

The Reserve Bank of Australia decided to leave the cash rate target unchanged at 4.35% in its final monetary decision before Christmas.

Today’s cash rate pause provides some relief for consumer and business confidence.

ARA CEO Paul Zahra says December’s rate decision will give the industry “cautious optimism” heading into the final few trading weeks before Christmas and the highly important Boxing Day and post-Christmas period.

“We’re pleased to see the RBA provide some much-needed reprieve for consumers and businesses during the busiest trading season of the year,” Mr Zahra said.

“Today’s decision will see the cash rate paused for at least two months, which will certainly help bolster business and consumer confidence in the vital Christmas and Boxing Day trading weeks to come.

“At a time of immense financial pressure and hardship for most– avoiding another cash rate increase will have a positive impact on spending and retail preparations.

“Avoiding a bitter rate increase blow before Christmas will certainly come as a relief to Australian homeowners, consumers, businesses, and the retail industry.

“Most discretionary retailers make up to two thirds of their profits at this time of year, and a second consecutive increase would have had a further negative impact on the rest of the year for retailers who are already battling a spending slowdown.

While Black Friday proved to be successful for retailers across the country, Mr Zahra said it was most likely because of shoppers bringing forward their Christmas gifting to take advantage of the sales.

“While this year’s Black Friday was record-breaking, it may come at the expense of December trading – which we’re expecting to be more subdued,” Mr Zahra said.

“The industry can be confident knowing they’re safeguarded from potential cash rate increases throughout the rest of the holiday trading period,” Mr Zahra added.

“Continued interest rate hikes have the dual effect of reducing customer spending whilst also increasing business costs – during a time where the industry is already under enormous pressure.

With December’s cash rate decision now in the books, the RBA will not meet again until February – with just eight meetings in 2024.

Deloitte Access Economics Partner Stephen Smith says: “With a slowing economy, fragile households, and waning confidence, the RBA has today delivered an early Christmas present to Australian households already feeling stressed by previous rate hikes. Deloitte Access Economics’ view is that further increases in interest rates are not needed, though mortgage holders will need to be wary of an increasingly hawkish RBA ahead of the next interest rate decision in February 2024.

“Inflation pressures are receding quickly around the world and markets are pricing in rate cuts in advanced economies for 2024. In contrast, recent weeks have seen the RBA double down on hawkish commentary and emphasise demand side, rather than supply side, driven inflation and ‘sticky’ homegrown price growth.

“Demand side pressures are certainly part of the story. But the supply side remains the key source of inflation. Only a handful of months ago, RBA analysis concluded that ‘at least half’ of the excessive inflation Australia is experiencing is due to supply side factors. Importantly, these factors are not just the international price pressures that first triggered the inflation battle. Domestic supply side constraints in housing and energy are key. Higher interest rates will do nothing to ease these supply side constraints, just as they will do nothing to stem the pace of population growth – the major driver of demand (and supply of skills) in the Australian economy.

“The RBA’s blunt, monetary policy tool is the wrong weapon to deploy against these challenges. In fact, higher interest rates will make it more difficult for Australia to boost housing supply and ease the cost of living crisis facing younger Australians who are renting or have mortgages, and are entering the holiday period in a very precarious state”.

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