Dovish pivot risks extending rate rising cycle: ANZ
Retail boss Gerry Harvey said he was yet to see the Australian central bank’s rapid succession of interest rate rises flow through to showroom floors and was expecting a strong finish to the year.
The Harvey Norman chairman said he was perplexed by media reports of a possible recession but conceded the outlook for 2023 was unclear.
Consumer spending strong
“There’s a lot of evidence out there that things are not as bad as we’re led to believe,” Mr Harvey told The Australian Financial Review. “Our sales are good, so they’re not reflecting anything like a recession or anything like that.
“But who knows what transpires next year,” he said, noting that was when the bulk of the RBA’s interest rate rises would begin to bite.
A large part of Mr Harvey’s confidence about the next three months related to a large build-up in the company’s “pending file”, which was goods sold but not yet delivered. The company founder said the file was the largest in the company’s history and due to a backlog in the housing construction sector.
The cash rate is now 2.6 per cent, up from 0.1 per cent in early May, and RBA governor Philip Lowe indicated more increases were coming, though economists said it would be difficult to return to larger monthly rate rises.
“[The] further increase in interest rates will help achieve a more sustainable balance of demand and supply in the Australian economy,” Dr Lowe said, which was needed to curb inflation currently forecast to peak at 7.8 per cent.
“The board expects to increase interest rates further over the period ahead,” he added, which would be “determined by the incoming data”.
Tuesday’s dovish decision surprised financial markets and economists given the continued flow data showing continued strong consumer demand.
Retail spending was buoyant in August, rising 0.6 per cent to a record $34.8 billion despite the RBA embarking on the most aggressive interest rate hiking cycle in almost three decades.
The larger-than-expected result was the eighth consecutive monthly rise, and suggested households were yet to feel the full brunt of the RBA’s four back-to-back interest rate rises to the start of the month.
Mr Harvey conceded it was an invidious situation for the Reserve Bank: “It’s very difficult to be at the RBA or an economist because we’re in a situation where we’ve just come out of pandemic, and now we’ve got a worldwide problem of inflation, it’s not just in Australia they’re trying to correct that.”
