Retailers hope for New Year interest rate cheer

Retailers are pinning their hopes on some New Year cheer after the Reserve Bank kept interest rates on hold.

The RBA left interest rates unchanged for the fourth month, with Governor Glenn Stevens citing an “uncomfortably high” Australian dollar, concerns of a slightly soft economy and an unemployment rate that has “edged higher”.

“This is likely to persist in the near term, as the economy adjusts to lower levels of mining investment,” Mr Stevens said.

“There has been an improvement in indicators of household and business sentiment recently, but it is still unclear how persistent this will be. Public spending is forecast to be quite weak.

“Recent data on prices and wages show inflation consistent with the medium-term target. The Bank’s assessment is that this is likely to remain the case over the next one to two years.”

Australian Retailers Association Executive Director Russell Zimmerman said retailers had been hoping for a December rate cut and shoppers might now think twice about spending extra this Christmas.

“December is a crucial month for retailers who are counting on Christmas sales to get back on track financially,” he said.

“The ARA believes that the current cash rate of 2.5% has room for further adjustment.”

AMP Capital Chief Economist Shane Oliver was unsurprised at the RBA leaving the cash rate at 2.5% and said he does not expect it to change until later next year.

RP Data Senior Research Analyst Cameron Kusher was also not surprised.

“From a housing market perspective the RBA would probably have been quite happy to see the rapid rate of home value growth slow in November, the big question from here is will the slowing continue or rebound back to previous levels after the seasonal Christmas/New Year slowdown,” he said.

The RBA will next meet to consider interest rates in February.