The Reserve Bank left the cash rate unchanged at 2.5 per cent at its first board meeting on Tuesday as was widely expected.
Retailers hope the central bank will hold the cash rate steady for a lengthy period, even if it doesn’t feel the need to make further reductions.
The Reserve Bank left the cash rate at an all-time low of 2.5 per cent at its first board meeting of the year on Tuesday.
The decision was widely anticipated in the wake of last month’s surprise jump in the consumer price index which took the annual rate of inflation to a two-year high.
RBA governor Glenn Stevens said monetary policy was appropriately set to foster sustainable growth in demand and keep inflation within the bank’s two to three per cent target band.
“On present indications, the most prudent course is likely to be a period of stability in interest rates,” Mr Stevens said in a statement.
The bank still expects economic growth to remain below trend for a time yet and unemployment to rise further before it peaks.
Mr Stevens said while inflation proved higher than expected just three months ago, the annual rate of 2.7 per cent over 2013 was consistent with inflation remaining in the target band over the next two years.
He attributed the rise to a quicker than expected price response to a lower exchange rate.
The RBA will release its updated economic forecasts in its quarterly statement on monetary policy on Friday.
National Retail Association chief executive Trevor Evans is concerned that if the RBA lifts rates too soon it would reverse all the gains made in retailing in recent months, saying the sector is still a long way from growth levels that preceded the 2008-2009 global financial crisis.
“Retailers need stability and certainty which can only be achieved by a steady hand on interest rates,” Mr Evans said in a statement.
Retail sales figures for the crucial December period will be released on Thursday.
Australian National Retailers Association chief executive Margy Osmond said it will be a report card on how strongly the sector ended the year.
“There’s no doubt retailers benefited from increasing consumer and business confidence in the second half of 2013,” she said.
John Kolenda, managing director at mortgage provider 1300HomeLoan, agreed consumers also need stability.
“Keeping official rates on hold for at least another six months would be a good recipe for the Australian economy,” he said.
Pitcher Partners Investment Advisory partner Sue Dahn said raising interest rates when unemployment is expected to increase would be “most unorthodox”.
“A tough May budget could continue to have adverse impacts on the employment front,” she said.
Finance Minister Mathias Cormann said the May budget would be the next instalment of the government’s commitment to repair the nation’s finances.
“We have inherited a budget in very bad shape,” he told reporters in Canberra.