Warren Reynolds: Even a small rate cut would send consumer confidence soaring

Ahead of the Reserve Bank’s December meeting, there’s a real opportunity for a seed to be planted to boost confidence among consumers and retailers alike. The latest Westpac-Melbourne Institute Consumer Sentiment Index was up more than 5 per cent in November, with consumers “cautiously optimistic” about the outlook for both the Australian economy and their finances.

The index highlighted that the mood among consumers appears to be improving, with positive signs for retailers ahead of the important Christmas period.

It’s a mood we’re starting to see reflected among our own customers, with some positive trends beginning to emerge within our internal data.

But there’s a long way to go. The Westpac-Melbourne Index also highlighted that consumers remain concerned about cost-of-living pressures and many are still struggling to keep up financially.

The RBA’s decision to keep rates on hold at its November meeting was largely expected, but there is now an opportunity to encourage consumer confidence by opting to cut rates sooner rather than later.

In its most recent statement, the RBA maintains that underlying inflation remains too high at 3.5 per cent and is not forecast to return to the 2.5 per cent midpoint of the inflation target until 2026.

While I’m not arguing for a return to the inflationary highs of recent years, I am concerned that the RBA’s dogged focus on reducing underlying inflation even further is seeing everyday Australians do it tougher, for longer. The Foodbank Hunger Report 2024 found food insecurity continues to rise among low-income households, and while inflation was a factor in this, it’s clear that family budgets are stretched beyond breaking point.

In a wealthy country such as ours, it’s unthinkable.

We’re also seeing businesses struggle to remain viable after spending several months dealing with the two-punch combo of increased costs and reduced consumer spend.

The RBA notes the labour market remains tight, with the participation rate remaining at record highs and vacancies still elevated, however I fear that this could change quickly unless consumers have the disposable income to once again support struggling businesses.

It’s clear that a rate cut is needed, and soon, in order to send a signal to the broader economy and change perception among consumers.

I understand the argument that cutting the official interest rate too far too soon may inflame inflation once again, but I argue that a small cut, of even just 0.1 per cent could plant the seed of recovery.

Inflation has become a feared word in recent years, but it need not be.

As a businessman with more than 50 years experience under my belt, I’ve seen numerous economic downturns and periods of growth.

It’s clear to me that we’re on the cusp currently, and the RBA’s decisions in coming months will either fuel consumer confidence and reflect positively in the economy, or we continue to push households — and by extension, businesses — to the brink, and risk prolonging the pain well into 2025.

Warren Reynolds is the executive chairman of Muzz Buzz