Reserve Bank’s ‘sledgehammer approach’ leaves small businesses the victims

(Source: Bigstock)

Today’s Reserve Bank interest rate rise will force some local businesses – especially small retailers – to close, says National Retailers Association CEO Greg Griffith. 

The bank raised the official cash rate (OCR) another 0.25 per cent, taking it to 3.6 per cent – the highest rate in a decade – and warns that further raises are likely. 

The strategy of increasing the OCR is to increase the amount of money householders must spend on their monthly mortgages, reducing the amount they spend on discretionary items thus forcing businesses like retailers to reduce prices to remain competitive. Such a strategy might please banks, but Griffith does not believe it should be retailers and small businesses who are left to suffer in the race against inflation – in part because they are passing on cost increases caused by supply chain costs, higher wages and other factors beyond their control. 

“The RBA is behaving as though there is disposable income out there that’s driving up spending,” said Griffith. “In fact, the cause is inflated costs hidden in the data. 

“It is unrealistic to expect consumers to stop spending or run retailers out of business to drive down inflation, particularly when neither of these factors is responsible for inflation,” he said.

“Household budgets are strained, forcing consumers to pull back on spending on even non-discretionary items, and retailers are left with little choice but to pass their increased costs on to consumers.

“The Reserve Bank is trying to win a race against inflation at the cost of driving local businesses off the road,” said Griffith.

According to calculations from RateCity cited by mainstream media, today’s rate increase will raise the monthly interest on a $500,000 mortgage by $77 – taking the increased interest charges since the Reserve Bank started hiking rates 10 months ago to about $983.

Bank may have ‘already gone too far’

Zippy financial director & principal broker Louisa Sanghera said while today’s rate rise was widely expected, there is evidence that the bank has “already gone too far”. 

“A number of economic indicators have started to skew softer, with rising unemployment, underwhelming wages growth and GDP, plus, home lending finance has fallen by a staggering 35 per cent in the past year,” she said.

“While it is economically prudent for inflation to be curtailed, the Reserve Bank appears to have taken a sledge-hammer approach, rather than showing a modicum of patience ­– even for a month or two – after February’s rate hike to analyse the impact of higher rates on consumer spending and the wider economy.   

“The consensus amongst economists is that the cash rate may have already been pushed too far, but it appears that possibility – as well as the pain being felt by mortgage holders – is falling on deaf ears at the Reserve Bank board table.” 

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