By Matthew Henry

SYDNEY: The Australian National Retailers Association (ANRA) has warned that today’s interest rate rise of 0.25 per cent could put a dent in retail spending this Christmas, particularly in ‘mortgage belt’ suburbs.

The Reserve Bank of Australia (RBA) this morning announced a rise in the official cash rate to 6.75 per cent, which will be felt most acutely by those with large mortgages as lenders follow suit in coming weeks.

“The RBA’s decision means mums and dads in the mortgage belt will be looking for ways to trim the family budget yet again and for many this could mean a leaner Christmas,” said ANRA chief executive, Margy Osmond.

“While the interest rate hike is not really surprising it is concerning coming into a traditional peak in the retail year.”

But Osmond said the affect could be at least partly offset by other factors.

“Last week’s retail figures reflect continuing confidence in the labour market with record employment levels and strong income growth, combined with the benefits of the Howard Government’s tax cuts,” she said.

“The impact on retailers from the sector of the community feeling the pinch is likely to be balanced out to some degree by the mortgage free and higher income spenders. If last year’s bumper Christmas sales are any guide, it still looks like a healthy festive season ahead.”

BSR general manager, Ian Brown, said the impact of a rate rise will be felt by certain electrical retailers, but probably not until after Christmas.

“This happens every time there is a rate rise, and if you look at it of course it will have some impact on them (mortgage belt retailers). But they always finds a way around it,” Brown told this afternoon.

“We are close to Christmas, but whether you are in mortgage belt or not people will still spend well in the lead up to Christmas. This may have an effect after Christmas when the credit card bills start coming in and people tighten up. But many people have already planned what they will spend.”

The rate rise was decided in the RBA’s monthly board meeting held yesterday.

RBA governor, Glenn Stevens, said the bank raised the rate due to growing inflation. Underlying inflation was 0.9 per cent in the September quarter and close to three per cent over the past year.

In a statement today, Stevens hinted at the possibility of further rate rises next year, forecasting that inflation was likely to stay at the upper end of the RBA’s comfort zone of two to three per cent.

“The annual pace of CPI inflation was lower, but this reflected two very low quarterly results nearly a year ago, as well as recent changes to the treatment of child care costs,” he said.

“By the March quarter of next year, both headline and underlying measures of inflation are likely to be above three per cent.”

Some analysts have interpreted the statement today as a signal that there may be another rate rise before Christmas, but others believe we will not see the cash rate change again until early next year.