Australian Retailers Association says rate hike a ‘blow to business’
“There might be a bit of tightening, but there is no evidence of that right now.”
Mr Harvey is the executive chairman of the $ 5.2 billion white goods and homewares company Harvey Norman that has stores across the nation, with a heavy exposure to regional areas.
Harvey Norman shares fell from $ 5.71 in late March to just $ 4.21, which Mr Harvey called “overstepping the mark.”
“Even if interest rates go to six or seven or eight per cent, we will still do quite well because I’ve had the history of doing it all my life,” he said.
Mr Harvey’s comments appear at odds with new Treasurer Jim Chalmers who has been talking down the economy.
The RBA blindsided economists on Tuesday when it increased the cash rate from 0.35 per cent to 0.85 per cent, the largest increase in 22 years. RBA governor Philip Lowe is tipped to lift the cash rate to 1.35 per cent in July.
Commonwealth Bank, ANZ, NAB and Macquarie followed Westpac in announcing they would pass on the full 50 basis point rate increase to customers, which would result in some loan repayments going up by hundreds of dollars a month, further squeezing budgets.
JB Hi-Fi boss Terry Smart said interest rate hikes and other cost of living increases are a concern, but noted the consumer electronics chain is well-placed as shoppers turn to value retailers in tougher times.
He said higher rates would usually affect consumer confidence. “The unknown is how much the benefits of the elevated household savings and low unemployment will offset these concerns,” he said.
“We are well-placed to navigate this potential tougher retail cycle that we may see in the coming months or into the next half.”
Kathy Karabatsas, chief financial officer for upmarket department store David Jones, said May and June sales are up on pre-COVID levels, and she does not foresee any slowdown in spending until after Christmas.
“We are aligned to many analysts views that the impacts of these current rate rises will impact department store sales in the first half of [calendar] 2023, ”she said.
“We are definitely considering the headwinds associated with multiple rate rises across the next two years.”
The Australian Retailers Association boss Paul Zahra was more pessimistic calling the rate increase a “blow for business”, which is already grappling with supply chain woes, staff shortages and rising costs of materials and fuel.
“While we appreciate the RBA is attempting to curb inflationary pressures, this rate rise is a blow for businesses, who are managing cost pressures from every angle,” the CEO of the peak body said.
Tighter household budgets
“These challenges are likely to get worse before they get better, and with further rates rises expected in the coming months, we could also see consumer spending impacted – in particular for discretionary items – as people begin tighten their household budgets.”
Rising interest rates, soaring prices of petrol and energy, and climbing food prices – with grocery chains Coles and Woolworths both signaling further food inflation – are all weighing on household budgets.
Consumers are also desperate to see family after prolonged lockdowns, and are spending more on travel and eating out – placing pressure on other discretionary spending.
But Wesfarmers boss Rob Scott said last week that local consumers are still in good shape, and households have plenty of savings to help cushion the rising cost of living.
Wesfarmers owns many retailers including Bunnings, Kmart Group (which includes Target) and Officeworks.
“I think there are reasons why we should be confident that we can withstand a few bumps along the way, but the risks that we need to be mindful of are inflation getting too far ahead of us,” he told the Financial Review after a company strategy day last week.
Mr Harvey said it would appear that inflation will climb to between five and 10 per cent, which means interest rates are going to have to move significantly higher.
“They told me interest rates going up a bit and inflation is coming back to 2 to 3 per cent next year. My view is they [RBA] have no idea what might happen. It might be nothing like that, so the moment it is total guesswork, ”he said.