Retailers Celebrate RBA Decision to Leave Interest Rates Alone

The Reserve Bank of Australia decided that the threat of further inflationary pressures must be over and therefore thought the best option was to sit tight and leave interest rates where they are.

Not surprisingly, those that would/could have suffered the most from an interest rate rise - retailers - were quick out of the stalls to endorse the RBA's decision.

Human quote machine Gerry Harvey of retailer Harvey Norman (ASX: HVN) told Bloomberg News, "Consumers will celebrate the decision, it will be good for them and that will flow through to the economy." He went on, "Our business is recording strong gains and inflation is low. That's a perfect scenario for the economy."

In other comments by retailers to Bloomberg, Michael Beagley the managing director of Sydney menswear store Rodd & Gunn Ltd said "Inflation is under control and there isn't much pressure coming through from wages. The economy is in a happy place at the moment, so there is no need to change that and increase rates."

From the analysts' side, market economist Rob Henderson at National Australia Bank (ASX: NAB) commented that "It's likely the Reserve Bank will have to revise down its inflation forecast, but they'll have to balance that by pointing out that there are still inflation risks."

Would it be cruel of us to say that that is classic economist speak? Having a couple of bob each way. If Henderson was playing chess he would have just put you in checkmate with that comment. In other words what he's really saying is "the inflation rate could fall, but it could also rise."

Wow! If only we thought of that logic we could have cleaned up at the races.

It's just a shame that the resources boom is still running hot and the price of a barrel of crude oil is still firmly entrenched in the USD$60 plus price range.

Comments such as these from Henderson and even those in various industries such as retailing where they all regale us with stories about how good and strong the economy is and how the stars are aligned and that everything is looking perfect for the economy. "Where is the risk?"

All sounds a bit year 2000 doesn't it as stock prices soared, the new economy was laughing in the face of the old economy, until... someone shouted, "the emperor's got no clothes!"

Then as quick as a flash investors realised that companies couldn't justify a price to earnings ration of 2,000x. They also soon realised that proper companies did have real cash coming into the company as opposed to 'revenue' from advertising swapping (you advertise on my website, we'll advertise on yours and we'll pay each other a huge amount for the privilege which can be recorded as income and expenditure).

It took a while before that creative accountancy scam was unveiled. Now, we are certainly not saying that the resources boom is identical to the dot- com bust, however, some of the over-optimism on inflation, interest rates and the current lack of wages pressure makes one feel that we wouldn't be surprised if something did suddenly appear from left-field.

Kris Sayce
for the Daily Reckoning Australia

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