The RBA’s decision to cut the interest rate by 25 basis points to 3.85 per cent has been welcomed across businesses. The Australian Retailers Association (ARA) and the National Retail Association (NRA) expressed hope that the rate cut will begin to revitalise the retail industry and boost business and consumer confidence.
“A lower cash rate should have a positive flow-on effect to retail businesses, many of which are highly dependent on discretionary spending,” said ARA CEO, Chris Rodwell.
He emphasised the value of the retail sector, which employs one in 10 Australians and contributes $430 billion to the economy.
He called for policy changes geared toward retail growth alongside interest rate cuts.
“The biggest ticket item is improving productivity by cutting red tape and applying downward pressure to business costs like energy, leasing, insurance and compliance,” Rodwell said.
“The volatility resulting from the current trade wars and ultra-low-cost global competitors is also impacting Australian retail’s share of wallet. While this is a very resilient sector, retailers can’t do it alone and we need the Federal Government to lean in to support the recovery of this vital sector.”
Both the ARA and NRA agreed that while rate cuts would boost spending in the short term, it would take time to see the impact of the lowered interest rates on retail businesses.
Compare the Market’s economic director David Koch stated the 0.25 per cent reduction would result in monthly repayment savings of $106 – over $1200 a year – for those with an average home loan of $666,000.
However, he warned homeowners to be wary of lenders, especially if they haven’t refinanced in a few years.
“If you’ve paid down your loan, and your property has increased in value, chances are you’ve improved your position to negotiate even better rates,” said Koch
Accountants call for focus on structural issues
While the rate cut will put money back into people’s pockets, especially mortgage holders, the move doesn’t address the structural issues holding the Australian economy back, according to CPA Australia’s business investment lead, Gavan Ord.
“We need to revitalise the business environment by removing unnecessary regulatory burdens and supporting entrepreneurship,” said Ord.
“If governments can shift away from regulation as the default response to every problem, and instead embrace practical solutions like education and better enforcement of existing laws, this will go a long way to creating the business-friendly environment that is so crucial to Australia’s economic success.”
Dr Isaac Gross of Monash University’s economics department expects two more cuts over the remainder of the year, contingent on the moderation of inflation and the impacts of Trump’s trade policies.
“Should Trump re-commit to radically higher tariffs, we would almost certainly see a large reduction in interest rates,” said Gross.
“On the other hand, the chance for further cuts could evaporate if inflation stays stubbornly high, which remains a real risk given the strength of recent job numbers and wage growth data.”
