Retailers across Australia have welcomed the Reserve Bank of Australia's (RBA) decision to slash interest rates by 25 basis points to 3.6 per cent.
The Australian Retailers Association (ARA) and National Retail Association (NRA) noted that lower interest rates will encourage much-needed discretionary spending.
“While the interest rate cuts have taken time to land, every reduction helps nudge us towards a brighter outlook for retail,” ARA CEO Chris Rodwell said. “This rate cut will help bolster confidence in the lead-in to the peak season.”
The cash rate cut in August follows a pause in July, which stunned economists across Australia who were expecting a cash rate cut last month as well.
Rodwell said there are two clear messages that stem from this decision. “First, given retail growth and consumer confidence remain subdued, it’s vital the RBA remain open to further cuts in 2025. Second, it’s critical the banks act now to pass on the full rate cut.”
“With one-in-ten Australians employed in retail, we need our $430 billion sector to lift,” Rodwell said. “A stronger Australian economic trajectory can’t happen without a retail recovery.
“Interest rates are only part of the story. Retailers have been battling higher costs of doing business across the board – rents have spiked, we’ve seen significant wage rises, along with higher energy, insurance and supply chain costs and unfortunately an intense retail crime wave.
“Global competition is well and truly on our doorstep with ultra-low-cost digital retailers like Temu and Shein scooping up an enormous share of local spending, without being held accountable to the same standards as our local retailers.
“On top of these challenges, businesses are tied up in regulatory reform, navigating the biggest set of workplace changes in decades. Many small businesses simply don’t have the resources to cope.
“That’s why Australia needs to see a bold agenda on productivity and red-tape reduction. It’s vital we remove barriers to growth and strengthen the resilience of our local retailers who contribute almost one fifth of our national gross domestic product.”
Rodwell said retail plays a critical role in employment, providing jobs for 1.4 million Australians.
“We stand ready to support the Federal Government with its productivity and economic reform agenda. And we urge the RBA to stay vigilant to opportunities to provide further relief and help ignite the economic recovery Australians so desperately need.”
Inside the RBA’s decision
The decision by the RBA to cut interest rates in August comes after updated staff forecasts for its August meeting suggested that underlying inflation will continue to moderate to around the midpoint of the 2 to 3 per cent range, with the cash rate assumed to follow a gradual easing path.
However, the board added that uncertainty in the world economy remains elevated.
“There is a little more clarity on the scope and scale of US tariffs and policy responses in other countries, suggesting that more extreme outcomes are likely to be avoided,” the board shared in a statement. “Trade policy developments are nevertheless still expected to have an adverse effect on global economic activity, and there remains a risk that households and firms delay expenditure pending still greater clarity on the outlook.
“As in May, the forecasts assume that both effects weigh on activity and inflation in Australia for a period.”
Locally, private demand appears to have been recovering gradually, the board added, with real household incomes picking up and some measures of financial conditions easing.
Various indicators also suggest that labour market conditions remain a little tight, although have eased further in recent months.
“The [ABS] unemployment rate rose to 4.3 per cent in the month of June and averaged 4.2 per cent in the June quarter as a whole, in line with the May forecasts. Measures of labour underutilisation nevertheless remain at low rates and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers.
“Looking through quarterly volatility, wages growth has eased from its peak but productivity growth has not picked up and growth in unit labour costs remains high.”
There are also uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments. The forecasts released this week are for the recovery in household consumption growth to be sustained as real incomes rise.
“Businesses in some sectors, however, continue to report that weakness in demand is making it difficult to pass on cost increases to final prices. There is a risk that consumption growth is a little slower than expected, which could weigh on growth in aggregate demand and lead to weaker labour market conditions.
“Alternatively, as real incomes and wealth continue to rise, households might choose to consume more and save less than expected. Labour market outcomes may also prove stronger than expected, given the signal from a range of leading indicators.
“There are also uncertainties regarding the lags in the effect of recent monetary policy easing and how firms’ pricing decisions and wages will respond to the balance between aggregate demand and potential supply for goods and services, conditions in the labour market and continued weak productivity outcomes.”
Many economists, including those at ANZ bank, are expecting another interest rate cut in late September. However, the RBA board remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and potential supply.
The board noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia.
“The board will be attentive to the data and the evolving assessment of risks to guide its decisions,” the RBA wrote. “In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
“The board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.”