NSW retailers fear another interest rate rise

By Craig Zammit

SYDNEY: If the Reserve Bank increases interest rates tomorrow, it will increase the standard mortgage rate to a 10-year-high of 8.3 per cent, affecting NSW retailers recovering from a state election and facing a trading month filled with public holidays.

“You can toss the dice — it’s a 50-50 whether they will or won’t have an increase,” Harvey Norman Warrawong franchisee, Steve Attard, told Current.com.au today.

“We have seen good signs after the election with good sales over the weekend and there have been some record housing sales for the last 18 months over the weekend," said Attard, whose store has been voted by electrical suppliers as the New South Wales store of the year and finalist for Australian store of the year in the 2007 Electrical Retailing Awards (ERAs).

"But if there is an increase it’s obviously not good for our industry because it stops people going out and buying houses and filling them up with goods,” he said.

The rate rise speculation has come on the back of climbing inflation during March, caused by petrol and transport prices increasing, with headline inflation edging up 0.5 per cent, contributing to the annual rate of 3.5 per cent.

With wage and price pressures threatening to force the Reserve Bank of Australia to recommend an increase, some analysts are predicting the rate rise is inevitable.

“The strength in the domestic economy and unambiguous price pressure should cement the case for an interest rate rise," TD Securities global strategist, Stephen Koukoulas, told AAP.

“Unless inflation pressures start to abate soon, the RBA may be forced to hike more than once over the next few months.”

JPMorgan economist, Jarrod Kerr, told AAP that current headlining data supports the claim that a rate rise is likely, however he remains confident that interest rates will not rise until later in the year.

“With monetary conditions as tight as they are and the Aussie dollar at the level that it is at, there’s no need for them to be hasty and tighten early when they are trying to get a gauge of the full impact of last year’s rate rise,” Kerr said.

With the Australian retail trade rising twice as fast as predicted, due to a tight labour market seeing increased consumer spending, yet another rate hike seems quite likely, but some are still showing faith in the Reserve Bank.

“I suppose we can’t all blame the Reserve Bank,” said Attard.

“They have done exceptionally well over the last few years to avoid having a mini recession as we’ve seen in Asia and in Europe. So all things considered I still think it’s positive and I don’t think they will increase — not this time anyway.”

While Attard feels the Reserve Bank won’t increase rates tomorrow, he does tread carefully around the election issue, agreeing that the election has the potential to bring an interest rate hike forward.

“They might [increase rates] now just to avoid the period of the elections, but I personally hope that they’ll hold off until after the elections.”

An AAP survey of 19 economists published last week showed only seven calling for a rise on April 4 when the RBA announces the results of its meeting.

The Reserve Bank last raised rates 0.25 per cent in November to 6.25 per cent.

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