Interest rate rise not necessary, says ARA

By Matthew Henry

MELBOURNE: Falling consumer confidence is likely to slow demand in late February and March whether the RBA raises interest rates tomorrow or not, according to the Australian Retailers Association, but consumer electronics retailers may not need to worry.

With another interest rate rise tipped by many economists this week, the ARA is calling on the Reserve Bank to put a freeze on the official interest rate when it meets tomorrow.

Recent data suggests consumer confidence was on the wane during the fourth quarter of 2007, and the ARA expects consumer demand will likely dip in February and March regardless of interest rates.

“Consumer confidence in January was quite low, so this suggests that demand is going to drop off whether the RBA raises rates or not,” ARA executive director, Richard Evans, told Current.com.au today.

But electrical retailers are unlikely to experience any additional fallout from a rate rise.

Harvey Norman chairman, Gerry Harvey, recently told Current.com.au that rising interest rates have shown no ill affect on his business during the past year and are unlikely to do so this time around.

Evans agrees that retailers selling electrical goods are less vulnerable to rate rises in the present climate.

“The point he (Harvey) makes is quite true, because the dollar is quite high at the moment and that allows most of the material Harvey Norman sells to be quite a bit cheaper. Also, a lot of the folks spending money in those stores are not necessarily mortgagees,” said Evans.

“Will [a rate rise] affect renters or those who have paid off their house? Not really.”

However, the ARA claims spending on discretionary items such as sporting gear is already contracting and the wider $292 billion retail sector could be hurt by another 0.25 per cent jump in interest rates.

Retailers and mortgagees should not be penalized when inflationary demand is limited to petrol, housing and education, said Evans.

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