The Reserve Bank of Australia (RBA) has been urged to cease further cash rate hikes by key industry groups, following another increase of 25 basis points this week.
The RBA has raised the cash rate by 3.5 percentage points in less than a year, with further increases foreshadowed in the months ahead.
The National Retail Association CEO Greg Griffith said the decade-high increase showed the RBA had underestimated borrowers’ capacity. He warned continuing down this path would lead businesses, specifically small retailers, to close down.
“The Reserve Bank is trying to win a race against inflation at the cost of driving local businesses off the road," Griffith said. "Household budgets are strained forcing consumers to pull back on spending on even non-discretionary items, and retailers are left with little choice but to pass their increased costs on to consumers.
“The RBA is behaving as though there is disposable income out there that’s driving up spending. In fact, the cause is inflated costs hidden in the data. It is unrealistic to expect consumers to stop spending or run retailers out of business to drive down inflation, particularly when neither of these factors are responsible for inflation."
There is a case for May’s federal budget to provide support measures for business and consumers doing it tough, Griffith said.
“The retail sector needs targeted support to ensure Australia’s small and medium sized business community can stay afloat throughout economic headwinds. Adding further to the strain, we are still faced with a labour shortage and have seen a drastic increase in retail crime across the country. These issues all contribute to the squeeze on retail growth."
Australian Chamber of Commerce and Industry CEO Andrew McKellar said the RBA should pause further rate rises at its April meeting.
“With too much hidden leverage around, the Reserve Bank must pause at its next meeting and take stock of whether rates are sufficiently restrictive to bring inflation back down to target. Like households, small businesses are feeling the pinch as they grapple with rising interest rates.
“Escalating interest rates mean more small businesses are struggling to keep up with loans on capital assets and buildings, as well as covering the ongoing costs of their operations. The Reserve Bank must be mindful of the cumulative tightening that’s already in the system and the lag effect of increasing interest rates.
"Households and small businesses have already stomached rapid rises and are still yet to experience their full effect.
“We are beginning to see signs that Australia has reached a turning point on inflation with negative household consumption growth and slowing economic activity recorded in the December quarter. At the same time the heat is beginning to come out of the jobs market.
“Failing to fully account for current conditions means that the Reserve Bank could move too aggressively and raise rates faster than the economy can handle.
“The Reserve Bank can’t do all the heavy lifting when it comes to taming inflation, so it is vital that fiscal policy is working in tandem with monetary policy.
“Expenditure restraint is absolutely essential in the May budget to help keep inflation under control. Any new spending measures should be targeted at driving productivity and growing the economy,” McKellar said.