RBA rate hike will ‘slow the retail recovery’. Experts respond

In the first interest rate hike since November 2023, the Reserve Bank of Australia (RBA) has increased the official cash rate by 25 basis points to 3.85 per cent.

The increase was a unanimous decision of the RBA’s board, which cited growing private demand, greater capacity pressures, and a tight labour market.

“The board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target,” the RBA said. “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.”

The decision has been met with criticism by retail industry leaders and experts.

Australian Retail Council (ARC) CEO Chris Rodwell warned of the impact on retailers and consumers. “Today’s decision by the Reserve Bank to lift the cash rate will weaken business and consumer confidence and will slow the retail recovery,” he said.

“Retail is a $444 billion sector which contributes almost one fifth of our gross domestic product and employs one in 10 Australians – we need retail to thrive for our broader economy to thrive.”

Rodwell called on the government to “reduce unnecessary red tape” to help businesses.

“Retailers have spent the past three years managing rising costs and navigating aggressive global competition and ongoing uncertainty. This rate rise places additional pressure on business investment and household budgets,” he added.

CreditorWatch’s chief economist, Ivan Colhoun, recognised the long-term reasons for the rate hike.

“While most consumers and businesses are unlikely to welcome today’s interest rate rise, allowing inflation to continue to rise in excess of 3 per cent after the previous very significant increase in the cost of living and cost of doing business benefits no one in the long term,” he said.

But more criticism came from Grant Austin, CEO of Pay.com.au, who said small and medium enterprises (SMEs) were already on “razor-thin” margins.

“This hike is a dangerous catalyst for more collapses,” Austin said. “Between this move and the proposed [card] surcharging ban in July, SMEs are being suffocated by rising overheads and a lack of liquid cash.”

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