RBA would surely know that lower interest rates have helped many businesses to cope with the downturn. Due to lower interest costs businesses have not had to resort to mass sackings and in turn lower than expected unemployment has kept consumer confidence high.
Start to hike interest rates at anytime in the next few months or so, and everything will crash like a house of cards. In accordance with all the hype about performance based executive pay, if RBS causes massive unemployment and dip in consumer sentiment as a result of interest rate hikes, can we demand the RBA Board to be sacked or will they resign gracefully themselves?
No matter what the indicators are showing, any hike no matter how small, in official interest rates in Australia in October (or the rest of 2009) will shatter consumer confidence, crash the badly needed Christmas trade in the retail sector, and cause a massive spike in unemployment rate.
Inflation rate is simmering below the 2-3% target and whilst retail trade figures in August were above July and higher than August 2008, retail generally is fragile.
Just try my litmus test in trade and see for yourself: Major shopping centre car parks should be full around lunchtime 7 days a week with cars queuing up for the chance to steal the odd available parking space. Go to any shopping centre and you will see this is currently not the case!
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