RBA cuts interest rate to 4.25%
BusinessDay reporter Chris Zappone looks at the key factors influencing the Reserve Bank's decision to cut interest rates.PT0M50S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-1og5q 620 349 December 6, 2011
RETAILERS have welcomed the Reserve Bank's rate cut in time for Christmas but some economists believe it is too late to save festive sales.
The Bank of Queensland was first to pass on the cash rate cut, but last night none of the big four banks had announced their decisions.
The 25 basis point cut to 4.25 per cent means borrowers will pay about $47 less each month for a $300,000 home loan.
Little could be done to help the ailing retail sector over the next six months. Photo: Angela Wylie
Ahead of the RBA decision Tim Rocks, senior equity strategist with Merrill Lynch, warned of a tough Christmas after canvassing the views of the nation's key freight and transport companies to determine stock volumes ordered by large retailers.
With the key selling period under way, it is too late to order new merchandise, even if demand rises.
''With one small exception, they are all telling us there is no material pick-up in freight at all that has come through since the middle of the year,'' Mr Rocks said.
''If you were going to ship by freight for Christmas you would have done it already, so it seems pretty clear to us from that, the Christmas buying has simply not occurred. There is no real indicator telling us that Christmas this year is going to be any better than Christmas last year.''
He said little could be done to help the ailing retail sector in the next six months, with a risk that a global recession could result in 100,000 job losses in Australia by March.
''What the Reserve Bank can do is work really hard and rescue Christmas 2012, but I don't think there is much it can do to make things better for the first half of next year,'' he said.
ANZ economist Katie Dean believed a large proportion of the extra money freed by the rate cut would flow into people's bank accounts and credit cards rather than retail tills.
''It's not to say the entire interest rate cut would be saved, I'm sure some of it will be spent but I would say a very good portion of it, perhaps the majority, would probably be used in savings or paying down debt,'' Ms Dean said.
Myer boss Bernie Brookes welcomed the decision to ease official interest rates, nudging the banks to pass on the cuts to their customers.
''This decision will be good for retailers with consumers no doubt appreciating the relief, which should result in a positive impact to consumer confidence,'' he said.
David Jones spokeswoman Helen Karlis said the cut was welcome news but would not prompt a big increase in consumer confidence. Ms Karlis said stores this year had suffered some of the worst trading conditions in 50 years.
Mortgage and Finance Association of Australia chief executive Phil Naylor said further decreases may encourage some people to take out mortgages. Yesterday's decrease would raise borrowers' confidence and help revitalise the mortgage sector. He said household savings rates had reached record highs and two-thirds of mortgage holders were paying more than the minimum on loans.