Hefty retail sales slide and weak building figures may halt rate rise

LARGE slump in shopping and building numbers could mean interest rates on hold in April.

Shoppers have lost their lust to hit the malls, forcing the RBA to rethink a rate hike next week, economists say / File

AN UNEXPECTEDLY large fall in retail sales and lower-than-expected building approvals could see the Reserve Bank hold interest rates steady next week, economists say.

Retail trade fell 1.4 per cent in February to $19.8 billion, from a downwardly revised $20.1 billion a month before, data from the Australian Bureau of Statistics released today shows.

It was far below the market forecast for a 0.3 per cent rise in sales in the month.

Meanwhile, building approvals fell 3.3 per cent to 13,929 units in February, seasonally adjusted, from an upwardly revised 14,405 units in January, the ABS said.

In the year to January, building approvals were up 34.2 per cent.

The median market forecast was for building approvals to have risen 2.1 per cent in the month.

Shocking drop in sales - economist

Rising interest rates appear to have taken the sting out of consumers' lust for shopping.

"It was a pretty shocking number," JPMorgan economist Helen Kevans said of the retail sales figures.

"Part of it is pay back for the strong January result and it's the result of a big fall in discretionary spending.

"Looking at these numbers I think there's reason for concern ... the RBA will get to its meeting next week and weigh the strength in the housing market against the weakness in the consumer."

Housing approvals down

CommSec economist Savanth Sebastian said the building approvals figures came as "no surprise" given the exit of first home owners from the market and rising interest rates.

"It's a clear sign that the economic recovery isn't set in stone,'' Mr Sebastian said.

"The Reserve Bank will need to take that in context.

"We've seen house price data that shows that property prices are rising but we all know that interest rates do have a lag effect on property prices."

Property prices were coming off a low base from 12 months ago, Mr Sebastian said.

"The building approvals data highlights, in terms of the housing sector, (that) it's likely to consolidate over the next few months and interest rates will not rise next week, especially given the uncertainty over the economy."

Consumer confidence still was not translating to increased spending, with retail sales down 1.4 per cent in February, he said.

"Overall, we'd be probably of the view that over the next couple of months you will get rate hikes, but certainly I don't think we're going to see back-to-back rate hikes."

Mr Sebastian said the 75 per cent chance of an April rate rise now was closer to a 50 per cent chance.

The Australian dollar lost half a cent on the release of the retail and building approvals data.

RBA to meet on Tuesday

The Reserve Bank is due to meet for its regular monthly board meeting on April 6.

Ms Kevans said JPMorgan expects the Reserve Bank to hold rates steady in April, instead raising the rate by 25 basis points at its May meeting.

"It will be a very difficult decision for the Reserve Bank next week and its not a done deal," Ms Kevans said.

"We expect it to be on hold next week and after these numbers we have no reason to change that."