Published on Aug 10, 2015

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The Reserve Bank of Australia (RBA) Board has kept the cash rate at 2 per cent, but flagged a potential rise by the end of the year.

The Board’s decision marks the third consecutive month the rate has remained unchanged.

Cessnock Chamber of Commerce President Geoff Walker said it was likely the RBA’s decision to maintain the current cash rate did not come as much of a surprise to many local business owners.

Mr Walker said the RBA’s commentary on the international and domestic economic outlook provided insight for business on how consumers could respond to the news. RBA Governor Glen Stevens’ statements about ongoing unpredictability in the Greek and Chinese economies, as well as domestic economic growth forecasts, could impact consumer confidence.

“This information can impact consumer confidence and willingness to spend money,” Mr Walker said.

“Whilst recent rate reductions have delivered savings to borrowers, unfortunately those savings are not going back into the economy through spending. Rather, people are choosing reduce their debt levels.

“At the other end of the spectrum, those with savings and investments are receiving less in interest payments compared to twelve months ago, leaving them with less money in their pockets for spending.”

Mr Walker said interest rates were not the sole factor affecting consumer spending in Cessnock.

“When we look within Cessnock itself it is the everyday issues which affect consumer confidence and the choice to spend or save. The recent announcement of retrenchments at local coal mines and fluctuating prices at the petrol pump also play a part,” Mr Walker said.

Low interest rate effect on business in Cessnock

Low interest rates usually go hand-in-hand with a low Australian dollar. Following the RBA’s rate announcement the dollar rose by nearly a cent to 73.7US cents; still far below its 2011 peak of 1.10US cents.

A low Aussie dollar is generally viewed positively for Australian businesses, at least for those with exposure to export markets. Our high quality products—natural resources, agriculture, livestock, manufactured goods—become cheaper, attractive options for overseas buyers. Tourism markets also get a boost. International visitors get more bang for their holiday bucks, while domestic tourists look for holiday options closer to home to avoid unappealing exchange rates.

The flip-side is that many businesses in the retail sector are reliant upon imported goods. The low Aussie dollar means the cost of items like clothing, electrical goods and cosmetics rises and already weakened consumer confidence is dealt another blow; the local electronics retailer sells less flat screen televisions, the local dress shop’s profit margin suffers.

However, the good news is Cessnock’s economy has strong representation in manufacturing, resources and tourism aligned industries. Businesses able to position themselves to exploit current market conditions can still find growth opportunities.

Need business advice?

A range of business networking, support and information services are available to businesses in Cessnock LGA. Contact the Economic Development Unit at economic.development@cessnock.nsw.gov.au or 4993 4185 for more information.