Retail king Gerry Harvey says back-to-back rate hikes ‘would be overkill’ with economy close to tipping point

Retail king Gerry Harvey says back-to-back interest rate rises in November and December “would be overkill” and warned the economy is close to tipping point.

In a widely anticipated move, the Reserve Bank of Australia on Tuesday raised interest rates for the fifth time this year to 4.85 per cent — the highest level since late 2008 — following red-hot inflation data last week.

“To have one (interest rate hike) now, I think you’re close to the tipping point and to do it it December would be overkill,” Mr Harvey, chair of Harvey Norman, told The Nightly.

“And if you pass the tipping point then you live to regret it.”

Tuesday’s hike adds an extra $92 to the monthly repayment of a borrower with a $600,000 loan and 25 years remaining, according to Canstar. The five rate rises since February have added $456 to monthly repayments on the same mortgage.

Some economists have not ruled out another hike in December, adding another $93 to monthly repayments.

While Mr Harvey reckons the death knell isn’t ringing for retailers just yet, he warns “there will be more bankruptcies . . . (in) most sectors”.

Mr Harvey said by raising interest rates on Tuesday, the RBA may have moved too quickly.

“(The RBA) would argue that it’s very important to get (inflation) under control — if we move too quickly, we can reverse later,” he said.

“Once you start putting a lot of people under great pressure and they start going bankrupt or can’t pay their bills, then to reverse that is very difficult.

“I don’t think that the people that make these decisions are quite aware of how difficult that is, and then they’ll look back in retrospect and think, ‘oh sh*t’.”

Westpac boss Anthony Miller this week said there was a chance of another rate rise “based on where things are at”.

Richard Holden, chief economist at Chartered Accountants ANZ, also said another hike on December 8 was possible, though noted “the RBA generally dislikes hikes just before Christmas”.

On Tuesday, KPMG chief economist Brendan Rynne said the question remained whether the RBA needed to deliver more pain beyond the fifth hike “to not only turn the current inflation trajectory, but to also bring it back to the target rate of 2.5 per cent within a reasonable time”.

“After two consecutive rate hikes, the RBA is likely to pause now for the Christmas period in the hope by its next meeting in February conditions may improve,” he said.

“If not it may very well consider further hikes to kick off the new year.”

Australia’s $444 billion retail sector warned the latest hike would further squeeze household spending as retailers enter the peak Christmas period, when many make up to two-thirds of their annual profits.

“There will be families now reassessing their Christmas budgets, while retailers are heading into their most important trading period with stock ordered, staff and bills to pay,” Australian Retail Council chief economist Glenn Fahey said.

“For many small businesses, this period builds the cash reserves that carry them through the quieter months. The consequences of a disappointing ‘peak season’ can last well into the following year. It can be make or break.”

Despite serious economic strain, experts expect Australians will still splurge this festive season, with upcoming Black Friday and Cyber Monday sales set to appeal to financially crimped households.

Retail expert Trent Rigby said November sales were now dominating the holiday calendar, with retailers fighting harder than ever to secure consumers’ dollar by offering aggressive discounts to survive.

Over the years, Black Friday, which follows the US Thanksgiving holiday, has grown beyond the traditional four days between the last Friday of November to Cyber Monday to become a month-long event.

“A lot of retailers are going quite hard on Black Friday and it’s turned into that whole Black November,” Mr Rigby said.

“A lot of consumers have deliberately been waiting for that sales period.”

Consumer behaviour and retail expert Gary Mortimer anticipates Aussies to safeguard the core spirit of the holiday despite tightening the belt before and after the sales period.

“Consumers won’t necessarily cancel Christmas, but I think they’ll be very cautious in how they navigate this Christmas trading period,” Professor Mortimer said.

Experts reckon the biggest casualty of this year’s belt-tightening will be big-ticket discretionary items, like a new TV, outdoor furniture and barbecues.

Discount department stores such as Kmart, Target and Big W are positioned to weather the storm as parents seek cheaper toy alternatives over high-end brands like Lego, according to Professor Mortimer.

Additionally, categories aligned with budget-friendly domestic leisure — like beach cabanas, camping gear and sporting goods from stores like Anaconda and Rebel Sport — are expected to hold up better than home electronics or luxury items.

Food also appears safe.

“I think we’ll continue to spend on food and groceries, I think Christmas is a very important part for families to come together and have a nice lunch or have a nice dinner,” Professor Mortimer said.

The bosses of Coles and Woolworths have both doubled down on providing value to crunched households this Christmas period.

Mr Harvey expects all of the nation’s biggest retailers to go big on discounts and promotions.