The Australian Industry Group, the Australian Chamber of Commerce and Industry, and the National Retailers Association have said the decision by the Reserve Bank of Australia to raise interest rates for the ninth consecutive month could have drastic consequences for Australia’s small businesses, already struggling with the cost-of-living challenges and decrease in retail spending.
“The RBA’s decision to raise the cash rate further and to continue to flag its expectations of further increases, is sobering,” Innes Willox, chief executive of the national employer association Ai Group, said.
“There are strong signs the desired slowdown in activity is beginning to take effect and as we get further along the path of monetary tightening, the risk of overdoing the rate rises clearly intensifies.
“It is critical now that businesses, governments and employees exercise moderation in price setting and wages negotiations and avoid fuelling the inflation and inflation expectations that will only increase the likelihood of further increases in interest rates.”
ACCI CEO Andrew McKellar said the latest rate increase raises concern about the impact on small businesses and the wider economy.
“We have already seen evidence in recent months of a slowdown in economic activity, so there is concern about the impact of higher interest rates on business and beyond,” he said.
“While attention is focused on the pinch of higher mortgage payment on households, businesses are also suffering the cost of rising interest rates through loans on their buildings, capital assets such as machinery, and to cover the ongoing costs of their operations.”
He added the higher interest rates will further dampen business investment at a time when it has flatlined over the past year.
“The latest ACCI-Westpac Survey of Industrial Trends showed that the general business situation had deteriorated dramatically in December and that manufacturers’ investment intentions were weakening, although remaining positive,” Mr McKellar said.
“The impact of interest rate rises come on top of energy costs, record labour shortages and supply chain challenges are driving this decline.
“There will be concern over coming months as we await the impact on households that transition from record-low fixed rates to higher repayments, and its impact on consumer spending power.
“There is a lag, but it’s clear previous interest rate rises implemented by the Reserve Bank have had an impact on the economy.
“The consumer price index figure for the December quarter was higher than anticipated. While it is not clear that it has peaked, there is evidence inflationary pressure should ease over coming months.
“The key message here for business is not to over-react. Let this play through and take time to see what’s happening.”
Mr McKellar said in the upcoming budget, it is essential the government introduce targeted measures to reduce impact of the rate rises on business and ease the cost of doing business.
“It is important that monetary and fiscal policy are aligned. In the upcoming Budget it is essential the government show spending constraint, with any new spending measures targeted at productivity and growing the economy,” Mr McKellar said.
The National Retail Association (NRA) said the interest rate hike is “heartbreaking” for Australian consumers and retailers that are already struggling to navigate economic uncertainty.
CEO Greg Griffith said consumer spending took a nosedive in December, dropping by 3.9 per cent and breaking an 11-month streak of recorded growth.
“A lot of Christmas spending occurred in November, and now that we’re over the festive-season high, consumers are curtailing their spending habits. This is the perfect time for the RBA to stop, wait and watch its rate hikes take gradual effect,” he said.
“Another consecutive interest rate increase is not only irresponsible but could cause an economic downturn and send some small retailers into an early recession with all their competing costs.
“The retail sector is fully reliant on consumer spending. While large retailers may cope with slowed economic growth, a downturn would hit small businesses much harder. We can’t afford to play fast and loose with the heart of the Australian economy.
“We call on the RBA to wait until small businesses and consumers have picked up the pieces from the RBA’s latest interest rate hike before deciding on another increase next month.
“We also ask the Federal Government to address the true contributors to rising costs, namely supply-side challenges, and rising energy prices, through guided policy that protects small retailers.”
