Analysts were saying that the next move in interest rates would be upwards and we saw evidence of that this week – not from the Reserve Bank, but from Westpac, which announced a 0.2 per cent increase in its variable rate mortgage. It’s not the first bank to nudge its rates upwards, but it is the biggest so far. It’s fair to predict that other banks will follow suit.
While Westpac says its hand has been forced by regulatory changes that have increased the cost of lending, it again demonstrates that official interest rates are a crude and increasingly ineffective tool for stimulating or slowing economic growth.
The Reserve Bank continues to keep the cash rate at record low 2% and it’s given no sign so far that it will hike them any time soon. Yet we are now seeing the banks’ actual lending rates creeping upwards.
This means two things. For retailers, this may have the same impact on consumer spending as an increase in official interest rates, particularly if it spreads to other major lenders. So unfortunately that may lead to some belt-tightening – not what we need as we start to set our eyes on the Christmas/Boxing Day sales period.
For the wider economy, it again underlines the importance of genuine reform. Slashing interest rates to the current low level has not done enough to stimulate the economy. Yesterday’s unemployment rate for September remained steady at 6.2 per cent, but with a net loss of more than 5000 jobs for the month. (The figure remained steady because the number of people actively looking for work reduced.)
This shows the need for serious action on two policy fronts. The first is workplace relations, where the Federal Parliament (particularly the Senate) needs to remove so many of the impediments to creating jobs. We need reform of unfair dismissals laws, more flexibility in employment arrangements and, yes, we need to look at penalty rates.
Secondly, the Federal Government needs to address its budgetary problem. The new Treasurer Scott Morrison has acknowledged that it exists, which is a good start. Now he needs to fix it, so the Government can take less money out of taxpayers’ pockets and leave them to spend it in the economy. This is the best long-term stimulus Governments can provide.
These are messages we will raise directly with senior Ministers in the Turnbull Government when a delegation from the NRA is in Canberra in the coming week. I look forward to sharing their responses with you next Friday.
As always, I encourage you to let the NRA know of any other issues, concerns or priorities you wish to have passed on to government decision-makers.
Have a great week,
P.S. Remember to have a read of the rest of this week’s Week In Review here.