Rate rises a 'blunt instrument'

Sydney Chamber of Commerce executive director Patricia Forsythe said there was legitimate and increasing concern the Reserve Bank's successive rate rises, 11 since 2002, were not having the dampening effect intended.

"When it comes to fighting inflation, monetary policy is a very blunt instrument," Ms Forsythe said.

"Despite international instability, the economy is fundamentally sound ... demonstrated by the strength of Christmas trading.

"Sydney has become a two-lane economy. The battlers have been stung by falling house prices and rate rises, but the wealthier regions are still experiencing solid house price growth.

"Only about a third of households have mortgages, so there are many households which aren't directly impacted by rate hikes."

Her comments were echoed by Retailers Association of Australia chief executive Richard Evans, who yesterday warned increasing interest rates affected only the minority of the population who were heavily geared with high mortgages while the rest of the population continued to spend.

"The Reserve Bank are hurting the people who can least afford it," he said. "In a worst-case scenario, the economic sunshine of the last 11 years will turn to sunset."

Mr Evans said reducing demand meant there was less money moving through the economy, fewer jobs and more small businesses going to the wall.

"If this happens, the whole country suffers," he said.

"The RBA's interest rate hikes have been a kneejerk reaction ... Once consumers stop spending, you lurch into a recession; small business starts struggling, unemployment starts increasing.

"Does the Reserve Bank really suggest high unemployment is the policy we want?"

Lisa Montgomery, head of consumer advocacy with finance group RESI Mortgage Corporation, said the rate rises were not having the effect on spending they used to, and there was little evidence rate rises had slowed the economy.