INTEREST RATE STALL TO HELP HOUSING RECOVERY

QUEENSLAND’S business community has welcomed today’s Reserve Bank of Australia (RBA) board decision to leave interest rates unchanged at 4.75 per cent.

Master Builders Queensland housing policy director Paul Bidwell says the RBA’s decision will help improve consumer and business confidence.

“There are some very good reasons for the RBA to keep interest rates on hold for an extended period and provide some much needed breathing space for the building and construction industry,” says Bidwell.

Bidwell predicts a rise in August finance and building approvals will coincide with the introduction of the State Government’s Building Boost Grant in the same month.

“Builders are telling us that since the boost commenced on 1 August there has been plenty of interest, which we are hopeful will translate into increased building activity,” he says.

However, Chamber of Commerce and Industry Queensland general manager Nick Behrens says keeping interest rates on hold – and not actually reducing - will only maintain financial pressures on ailing small to medium enterprises (SMEs).

“A cut in interest rates would have relieved pressure on those SMEs, who are struggling to keep their business alive,” says Behrens.

“Factors including external pressures like global instability, competitive online retailing and the high Australian dollar are making it harder for SMEs to compete and grow.”

Behrens says rising interest rates have increased the dollar’s value, which are hurting exporters, tourism operators, import manufacturers and retailers.

“Queensland businesses are overwhelmingly telling us consumers are not spending at present and rates-on-hold only compounds this trend,” he says.

Master Builders estimates that 27,000 new homes were commenced in 2010-11, representing a 20 per cent decline from the previous period.

“We are hoping for a slight improvement during 2011-2012, somewhere around 28,000 to 29,000 dwelling commencements,” says Bidwell.

Renovation activity is tipped to remain solid in 2011-2012 due to disaster recovery work.

RBA governor Glenn Stevens says global financial market conditions have been unsettled during recent weeks, with the Australian sharemarket plunging in response to falls in Europe.

“Participants have confronted uncertainty about both the resolution of sovereign debt problems and the prospects for economic growth in Europe and the United States,” he says.

“The uncertainty and financial volatility is reducing confidence and may result in more cautious behaviour by firms and households in major countries.”

The Australian Retailers Association (ARA) says the RBA’s decision gave retailers no respite, with customers having to postpone discretionary spending in the lead up to Christmas.

ARA executive director Russell Zimmerman says the retail sector is in dangerous territory.

“Consumer confidence is at an all time low, which has left the retail sector in the negative as year on year trade figures show declines across categories which rely on discretionary spend,” says Zimmerman.

“Retailers can only live in the hope that the strain of interest rates will be eased for consumers in time for the festive season by way of a rate cut in October.”