RBA decision will miss the mark in Queensland

Tuesday 2 August, 2016 | By: Default Admin | Tags: interest rates, RBA, cash rate, consumer spending

The Chamber of Commerce and Industry Queensland (CCIQ) says the decision by the Reserve Bank of Australia to cut the official interest rate will miss the mark and receive only mixed reviews from small business.

At its meeting today the RBA lowered the cash rate by 25 basis points to 1.50 per cent – the lowest official cash rate on record.

Last week’s inflation numbers were the weakest rise in 17 years, recording only one per cent growth over the year to the June Quarter and well below the RBA’s two to three percent target range.

CCIQ Director of Advocacy Nick Behrens said as economic activity had tightened businesses had been extremely reluctant to increase prices through fear of losing market share.

“Households and some businesses with borrowings stand to benefit from the rate cut, as do tourism operators and exporters, as it takes further demand away from the Australian dollar.

“The Queensland economy is in need of stimulus and this rate cut could in theory boost consumer spending.

“Hopefully, the RBA decision will further remove some financial pressure off households and free up discretionary expenditure to deliver a surge in spending across the Queensland business community.

“However, we are not confident that this will be the case as rate cuts have increasingly become ineffective in increasing spend across the economy.”

Mr Behrens said lower mortgage payments were increasingly being channelled into debt retirement.

“Interest rate cuts have not hit the mark in terms of promoting a boost to spending,” he said.

“Today’s cut will not materially benefit businesses, as households instead choose to further pay down debt and not use the boost to their disposable income to purchase goods and services.

“There is a lot of uncertainty at present about the jobs market, with people now saving for a rainy day.”

Mr Behrens said businesses experiencing a difficult trading environment typically said the confidence of both business and consumers was paramount.

“Unfortunately, we are now reaching the point where rate cuts only cement the view that the economy is in a difficult position and that in turn further erodes confidence,” he said.

 

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