Harvey Norman: Rate cut good for retailers, prices set to rise

By Patrick Avenell

Harvey Norman executive director David Ackery has told Current.com.au that prices in-store will inevitably rise. Ackery also said that today’s interest rate cut was a “shock”, but positive news for retailers.

In a candid and frank interview this afternoon, Ackery gave an honest and insightful view of today’s dramatic currency and interest rate fluctuations. After the value of the dollar plummeted this morning, Sunbeam CEO David Jackson said small appliances prices would rise before Christmas. Then, in the afternoon, the Reserve Bank slashed 100 basis points off the cash rate, an effective 1 per cent drop in interest rates.

“The laws of economics suggest prices should rise,” said Ackery. “But I don’t speak for suppliers.

“Suppliers would have taken foreign exchange cover in advance [back when the currency was stronger]. I believe they’ll run the benefits of this out in January or February [2009].”

Ackery said that at that stage a decision would have to be made, based on marketplace demand and consumer sentiment, as to whether prices at supply level rise. “I can’t see how they wouldn’t,” was his frank assessment.

But with the prospect of higher prices at supply and store level, there is also now the distinct possibility of higher disposable income, dependent on how much of this amazing interest rate reduction, the greatest single cut in 16 years, will be passed on the general public.

Ackery’s view is surely not too dissimilar to most Australian today.

“It’s a bit of a shock,” he said.

When asked how this might affect Australia’s multitude of Harvey Norman franchisees, Ackery was upbeat.

“It can only be positive news for retailers.”

But to the level of positivism, Ackery was certainly more restrained ARA executive director Richard Evans.

“It suggests the underlying uncertainty this financial ruckus has caused. Will it cause people to rush out an spend? There’s a lot more questions to be asked.”

If nothing else, on a day that Harvey Norman shares fluctuated between $2.68 and $3.06, or 12 per cent, Harvey Norman shareholders and franchisees can be satisfied that at least their executive director is showing the thoughtfulness and restraint so often considered desirous in uncertain times.

Harvey Norman’s share price closed today up 9 cents to $2.90.

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