By Keri Algar

SYDNEY, NSW: About twenty minutes before the streets became still, offices emptied and all eyes turned to the race yesterday afternoon, the Reserved Bank of Australia (RBA) announced it would lift the official cash rate by 25 basis points, to 4.75 per cent.

The risk of inflation rising again over the medium term and solid private spending were cited as reasons for the increase by Glenn Stevens, RBA Governor.

“At today's meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent,” said Stevens in a statement released yesterday.

“While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment.”

However, electronic retailers already feeling the pinch will not be assuaged by the central bank’s predictions of stronger spending.

Margy Osmond, Australian National Retailers Association CEO, said a rates rise so close to Christmas would have a significant detrimental effect on sales.

“With Christmas just around the corner retailers will be worried about the most important period in the retail calendar as they round the last furlong before Santa comes riding in on his sleigh,” said Osmond.

“Of 1000 Australians asked just last week what their spending intentions would be with a rate rise – almost 40 per cent said they would slash their spending – a disastrous blow to the retail sector.

“Retailers have raised their concerns with the RBA as the sector remains in the outside lane, and lagging behind, in the two speed economy – which shows no signs of evening out any time soon. An interest rate rise before Christmas will delay retail’s recovery even further.”

Meanwhile, the Commonwealth Bank of Australia has almost doubled the RBA’s rate rise for its home loan customers, by lifting rates on its variable home loan rates by 45 basis points. Other major banks are yet to announce their rate changes.