National retail bodies have welcomed the Reserve Bank’s (RBA) decision to cut interest rates a quarter percentage point to reach a new record low of 2.5 per cent, effective February 4.

Cash rates had previously been set at a record low of 2.5 per cent, for a year and a half.

RBA governor, Glenn Stevens, said the economy is growing a little below trend and will likely remain so for somewhat longer, while unemployment is likely to peak earlier than expected.

“The economy is likely to be operating with a degree of spare capacity for some time yet.

“The board judged that, on balance, a further reduction in the cash rate was appropriate,” he said.

Australian National Retailers’ Association CEO, Anna McPhee, said it was a sensible approach taken by the RBA in lowering the cash rate.

“Recent falls in fuel prices have had a positive impact on household budgets and the RBA’s willingness to lower the cash rate and encourage growth will provide important support to consumer confidence.

“The latest sentiment reading suggests consumers need to feel more confident about a range of economic factors before we see further improvements to activity in the retail sector and reap the recurring benefits this delivers to the economy more broadly,” said McPhee.

Australian Retailers Association (ARA) executive director, Russell Zimmerman, agreed the rate cut will assist in boosting consumer confidence.

“This decision comes after a drop in fuel costs and the Government’s recently announced small business tax cuts, which we hope will also help to overcome mixed international and Australian economic news.

“The ARA also asks banks to pass on this rate cut in full to consumers and businesses.

“We’re optimistic that the RBA’s decision will provide retailers with some much needed relief and allow them to start the new year with confidence,” Zimmerman said.