By The Editor
The Reserve Bank’s decision to cut interest rates by 0.25 per cent yesterday, the first interest rate cut for more than two years, is exactly the tonic needed for businesses and consumers struggling with cashflow leading into the Christmas shopping season.
With the RBA’s concerns about inflation allayed for the time being, and economic growth continuing to be moderate, the Bank yesterday acted as many economists predicted in cutting the cash rate to 4.5 per cent.
Most of the banks have already passed on or will pass on some or all of the cut in the next couple of days.
While most of the media reaction has centred on the relief for homeowners and families, there will be many direct and indirect benefits for businesses.
Many individuals have been understandably anxious about spending given economic uncertainty at home and overseas. The rate cut will ease some of that anxiety and encourage people to open their wallets and spend more freely during the Christmas period – especially helpful for the retail and hospitality sectors.
Assuming the rate cut is passed to businesses, lower interest rates will also reduce overdrafts and encourage confidence among business owners to access credit (assuming banks will lend), for which demand is currently at lower levels than usual. This is vital for everyone outside the resource sector, as other sectors have been under some sort of pressure in recent times, due to the high Australian dollar, uncertainty related to the carbon tax and rising labour costs.
With small business being a key employer of Victorians, we’re glad that this interest rate cut will ease some of the pressures being felt. It won’t be a magic fix, but it will help to encourage investment, ease cashflow concerns and boost productivity for the time being.