The Reserve Bank of Australia’s (RBA) decision to cut the cash rate by 25 basis points to 3.85% was welcomed by the retail industry this week, as an encouraging boost for Australia’s retail recovery.
The Australian Retailers Association (ARA) and National Retail Association (NRA) said although the interest rate cuts are occurring later than hoped, the relief for Australian households should have a positive impact on trading conditions in the coming months.
“We hope it nudges business and consumer confidence in the right direction,” said ARA CEO, Chris Rodwell.
“A lower cash rate should have a positive flow-on effect to retail businesses, many of which are highly dependent on discretionary spending. That’s why we urge the RBA to stay vigilant to opportunities to provide further relief.”
Mr Rodwell said many retailers have been under enormous pressure for the past five years, battling the dual headwinds of higher business costs and lower spending.
“Interest rates are one part of the equation. We now need to see some policy changes that will give retail the license to grow. The biggest ticket item is improving productivity by cutting red-tape and applying downward pressure to business costs like energy, leasing, insurance and compliance. We’re also keen to collaborate with government on solutions for retail crime and supply chain resilience,” he said.
The peak bodies acknowledged that while the rate cut will boost retail and consumer sentiment in the short term, there is still much headway to make, noting there is a lag from when the decision is taken till when the tills of retailers tick up.
“While this is a boost, alongside the more positive March trade figures from the ABS, we need to see much greater relief before we are close to a recovery.
“We’re keen to see continued rate cuts by the RBA to help ignite the economic recovery Australians are waiting for,” said Mr Rodwell.
Cut to provide breathing space, but won’t solve ongoing crisis
Australia’s largest accounting body CPA Australia warns that while the rate cut will put more money back in people’s pockets, it won’t solve the structural issues holding the economy back.
“This cut should lift sentiment slightly and put a bit more money back into people’s pockets,” said CPA Australia’s Business Investment Lead, Gavan Ord.
“But rate cuts will not get Australia out of its productivity straitjacket. Significant reforms are needed to move the needle on economic growth.”
CPA Australia is urging federal and state governments to prioritise policies that support business investment and innovation. This includes reducing red tape and initiating public discussions on substantive tax reform.
“We need to revitalise the business environment by removing unnecessary regulatory burdens and supporting entrepreneurship,” Mr Ord said.
New global risks loom
Innes Willox, Chief Executive of national employer association the Australian Industry Group also expressed caution regarding the broader context of global economic uncertainty.
“A 25 basis point cut in the cash rate will provide some much needed relief for the economy,” he said.
“However, declarations of a ‘soft landing’ are premature. The global economic context Australia now faces is highly uncertain with many risks to the downside.”
Mr Willox says Trump’s trade wars loom over the global economy.
“While we should welcome the good progress made in controlling inflation, a new wave of global economic challenges now awaits us. They warrant an immediate focus on growth and productivity oriented reforms from the new federal government,” Mr Willox said.
