Mixed sentiments from small business on record low interest rates

Tuesday 5 May, 2015 | By: Darrell Giles | Tags: interest rates, RBA, tourism, retail, Pulse Survey;

The Chamber of Commerce and Industry Queensland (CCIQ) said small businesses will have mixed feelings about the RBA’s decision to cut interest rates by 25 basis points to a record low 2 per cent.

CCIQ Director of Advocacy Nick Behrens said while the interest cut announced today was welcomed by sectors like tourism, retail and housing construction, it would not have the desired effect on consumer spending.

“The cut will support the downward trend in the Australian dollar, which in turn will bolster the competitiveness of our exports and benefit local tourism, retailers competing with online purchases, and manufacturing businesses directly competing with imported products,” he said.

“These benefits have taken longer to materialise than previously anticipated, so the additional stimulus provided by the RBA today is likely to speed things up.

“The lower interest rate will also provide further stimulus to the recent upswing in the residential housing sector and will alleviate some of the cost pressures for business borrowing.

“However, the lower interest rate will do little to improve business sentiment.”

Mr Behrens said with Queensland business confidence now at a six-year low, the decision to cut interest rates would only reinforce business concerns that challenging economic times lay ahead. 

“The latest Westpac Group CCIQ Pulse Survey of Business Conditions for the March Quarter 2015 confirmed the level of consumer demand as the biggest constraint on growth,” he said.

“When combined with high business operating costs it is no surprise that business expectations about future growth are weak. 

“Confidence has also been adversely impacted by the drought, slowdown in mining investment and high unemployment.

“We have reached a point where further rate cuts will only serve to cement the view that our economy is in a difficult position, which erodes confidence even more.

“When consumers hear that rates have been cut, they immediately draw the conclusion that we are headed for further economic pain and are reluctant to spend.”

Mr Behrens said Queensland small businesses would look to the Federal Budget on Tuesday May 12 as the next opportunity to boost confidence.

 

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