Industry peak bodies have welcomed the cash rate cut this week and are calling for more cuts ahead to drive the retail recovery.
The Reserve Bank of Australia (RBA) slashed the cash rate by 25 basis points to 3.85 per cent.
The Australian Retailers Association (ARA) and the National Retail Association (NRA) note that although the interest rate cuts are occurring later than hoped, this should have a positive impact on trading conditions in the coming months.
“We hope it nudges business and consumer confidence in the right direction,” ARA CEO Chris Rodwell said.
“A lower cash rate should have a positive flow-on effect to retail businesses, many of which are highly dependent on discretionary spending. That’s why we urge the RBA to stay vigilant to opportunities to provide further relief.”
Rodwell – whose role will shift to lead the amalgamated ARA and NRA under the Australian Retail Council (ARC) – said retailers, and particularly small businesses, are the backbone of the Australian economy, contributing $430 billion to the national economy annually.
He said many retailers have been under enormous pressure for the past five years, battling the dual headwinds of higher business costs and lower spending.
“Interest rates are one part of the equation,” Rodwell said. “We now need to see some policy changes that will give retail the license to grow.
“The biggest ticket item is improving productivity by cutting red tape and applying downward pressure to business costs like energy, leasing, insurance and compliance.
“We’re also keen to collaborate with government on solutions for retail crime and supply chain resilience.”
Rodwell added that there is also volatility resulting from the current trade wars and ultra-low-cost global competitors, impacting Australian retail’s share of wallet.
“While this is a very resilient sector, retailers can’t do it alone, and we need the Federal Government to lean in to support the recovery of this vital sector.”
The peak bodies acknowledged that while the rate cut will boost retail and consumer sentiment in the short term, there is still much headway to make, noting there is a lag from when the decision is taken till when the tills of retailers tick up.
“While this is a boost, alongside the more positive March trade figures from the ABS, we need to see much greater relief before we are close to a recovery.
“We're keen to see continued rate cuts by the RBA to help ignite the economic recovery Australians are waiting for.”
RBA commentary
Despite the latest interest cut, the Reserve Bank claims the outlook of Australia’s economy remains uncertain.
In a statement to market, the RBA board reported that uncertainty in the world economy has increased over the past three months, and volatility in financial markets rose sharply for a time.
“While recent announcements on tariffs have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries,” the RBA wrote.
“Geopolitical uncertainties also remain pronounced. These developments are expected to have an adverse effect on global economic activity, particularly if households and firms delay expenditure pending greater clarity on the outlook.
“This has also contributed to a weaker outlook for growth, employment and inflation in Australia. That said, world trade policy is changing rapidly, thereby making the central forecasts subject to considerable uncertainty.”
Meanwhile, private domestic demand appears to have been recovering, while real household incomes picked up and some easing on financial stress.
However, the RBA board noted that businesses in some sectors continue to report that weakness in demand makes it difficult to pass on cost increases to final prices.
“At the same time, a range of indicators suggest that labour market conditions remain tight,” the RBA added. “Employment is continuing to grow, measures of labour underutilisation are at relatively 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 softened over the past year or so 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, according to the RBA.
“While the central projection is for growth in household consumption to continue to increase as real incomes rise, recent data suggest that the pick-up will be a little slower than was expected three months ago,” they wrote.
“There is a risk that any pick-up in consumption is even slower than this, resulting in continued subdued growth in aggregate demand and a sharper deterioration in the labour market than currently expected. Alternatively, labour market outcomes may prove stronger than expected, given the signal from a range of leading indicators.”
The RBA board continues to remain resolute on keeping inflation in the target band of 2 to 3 per cent. According to the board, the risks to inflation have become more balanced, with upside risks appearing to have diminished as international developments are expected to weigh on the economy.
With inflation expected to remain around target, the board judged that an easing in monetary policy was appropriate in May.
“The board assesses that this move will make monetary policy somewhat less restrictive. It nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply.”
“The board considered a severe downside scenario and 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.”