Interest rate decision brings Christmas cheer

Posted December 07, 2010 | By Sonia Nair

Jewellery retailers can remain hopeful that consumers will spend this Christmas after the Reserve Bank of Australia maintained interest rates at 4.75 per cent.

The Reserve Bank's decision corresponded with economic analysts who had forecast that the interest rate would not be raised because of weak third-quarter economic growth and a surprise slump in October retail sales.

RBA Governor Glenn Stevens said Australia was at its highest trading levels since the early 1950s and national income was growing as a result.

However, despite a greater willingness to lend, Stevens admitted that overall credit growth remains subdued.

“In the household sector thus far, there continues to be a degree of caution in spending and borrowing, which has led to a noticeable increase in the saving rate,” Stevens said.

“The board views this setting of monetary policy as appropriate for the economic outlook.”

Stevens conceded that the strong exchange rate and high level of commodity prices would help contain inflation but said inflation “is likely to increase somewhat over the medium term if the economy grows as expected”.

The Australian Retailers Association (ARA) welcomed the decision to hold the interest rate at 4.75 per cent.

ARA executive director Russell Zimmerman said, “Christmas is the ‘Grand Final’ of retail trade with some stores taking up to 40 per cent of their yearly turnover from mid-November to Christmas eve, so there would be relief that rates are on hold at this important time of year.”

The Reserve Bank will review the interest rate again in February.

More reading:
Interest rate rise could 'ruin' Christmas for jewellers