RBA Leaves Interest Rate Unchanged – channelnews

Despite overwhelming evidence of high interest rates hurting retailers and sectors including transport and construction, as well as consumers, the Reserve Bank of Australia has chosen to keep the cash rate unchanged at 4.35 per cent – ​​a figure where it has been since last November.

The Australian Retailers Association (ARA) issued a statement following the RBA’s announcement saying that while it welcomed the fact that the cash rate was not raised, pressure is mounting on small businesses.

“We’ve seen extraordinary resilience from our retail community in recent years. But with ongoing pressure from many directions, many small businesses are struggling to cope,” said ARA chief executive officer Paul Zahra.

“Whilst there is no immediate relief in sight, today’s announcement will help keep consumer and business confidence steady. This decision will come as cold comfort to many retailers who may have been fearing a cash-rate increase. Cost-of-living pressures continue to impact the spending habits of Australians, with many households feeling the pinch.”

The latest decision doesn’t come as a surprise since the RBA governor Michele Bullock has previously indicated that rate cuts are unlikely in the near term.

The RBA lifted interest rates 13 times over an 18-month period to November last year to tame inflation.

Australia’s economy grew by just 0.2 per cent in the June quarter, and 1.5 per cent in the 2023-2024 financial year, according to data by the Australian Bureau of Statistics (ABS).

“Excluding the Covid-19 pandemic period, annual financial year economic growth was the lowest since 1991-92 – the year that included the gradual recovery from the 1991 recession,” said Katherine Keenan, ABS’ head of national accounts.

Bullock’s reluctance to reduce interest rates was due to her instance that inflation was still too high.

The RBA says that it expects inflation, now at 3.8 per cent, to be back within its 2-3 per cent target range by 2026. This is longer than the 2025 figure that the RBA had proposed as recently as May.

On Tuesday, the RBA issued a statement which further reiterated that it is unlikely to consider cutting rates in the near term. It said, “It will be some time yet before inflation is sustainably in the target range.”

Bullock meanwhile at a press briefing following the RBA meeting said, “We’ve considered in detail whether our current settings are sufficiently restrictive and judged that based on what we know at the moment, rates will remain on hold for the time being.

“Inflation has come down a long way since it peaked in 2022, both in Australia and overseas. Part of this was the resolution of supply chain issues and energy prices easing, and monetary policy has also been doing its job. But inflation is still above our target and it’s proving to be sticky.”

Bullock also revealed that the latest meeting was its first since March wherein the Reserve Bank did not consider raising rates. “We didn’t explicitly consider an interest rate rise at this meeting. The format of the meeting was slightly different. The way we framed the discussion really was around what had changed since August, and what would we need to see to go either a raising in interest rates or a lowering in interest rates?”

The persistently high interest rates is already resulting in Australian retailers forecasting a grim outlook for the holiday period this year, though they expect to recover in 2025. Deloitte’s 13th Retail Holiday Report, released last week, stated that shoppers are looking to spend almost 18.9 per cent less – an average of $1002 each – these holidays which is a crucial period for retailers. The average expenditure during the 2023 holidays was $1192 per shopper.

The report finds 51 per cent of retailers expect sales growth during the 2024 holiday season, down from 57 per cent a year ago and 67 per cent in 2022.

“This pause on the cash-rate hike will hopefully allow retailers to build momentum into the all-important Christmas trading period where up to two-thirds of discretionary retail profit is made,” noted ARA’s Zahra. “We need urgent action to ensure Australia’s $420 billion retail economy not only survives but thrives.”

If there is any ambiguity as to whether the RBA will consider a rate reduction anytime soon, Bullock laid that argument to rest on Tuesday by saying, “The message clearly from the board is that in the near term it does not see interest rate cuts. “