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Big retailers demand meaningful rate cut -

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ELEANOR HALL: One of Australia's top business leaders is urging the Reserve Bank board to make a significant cut to the official interest rate at today's meeting.

Solomon Lew from the retail group Premier Investments says the recent quarter of a percentage point reductions have not been big enough to boost consumer confidence.

Mr Lew's warning comes amid expectations that the RBA will cut the cash rate to an emergency low of 3 per cent later this afternoon.

Joining us now is business editor Peter Ryan.

So Peter, is Solomon Lew calling for the RBA board to cut rates below 3 per cent today?

PETER RYAN: Eleanor, it sounds as though Mr Lew is saying that the 150 basis point cuts that we've seen so far this year or since November haven't been doing the job and he wants some heavy artillery brought in to stoke the economy, in particular retail.

And just yesterday, retail sales for the month of October came in flat at 0 per cent, no growth at all, so consumers are more cautious than ever.

And this is acute problem for Solomon Lew, his company Premier Investments owns retail brands like Peter Alexander and Just Jeans. Just Jeans' conditions have of course been difficult, but unlike other traditional bricks and mortar traders, Premier is still in business and still profitable.

But Solomon Lew says the customers are fading and he wants the Reserve Bank to send a significant message this afternoon, not just a 25 basis point cut to an emergency low of 3 per cent, Mr Lew seemed to be signalled a half a percentage point cut was needed to kick-start the economy.

SOLOMON LEW: The Reserve Bank of Australia must act to send consumers a clear signal - incremental changes of 25 basis points are not enough to achieve a change in consumer confidence. As a retailer with 50 years of experience, I can tell you that businesses are doing it tough.

Conditions are as difficult as I have seen. If this continues, the rest of the economy will continue to shrink and we'll be left with a legacy of these mistakes in a post-boom world, a less productive, less competitive economy.

ELEANOR HALL: That's the chairman of Premier Investments, Solomon Lew.

Peter, how likely is it that the Reserve Bank board will cut rates as deeply as Solomon Lew is recommending?

PETER RYAN: Well retailers like Solomon Lew have never seen a rate cut they didn't like and they would always want a bigger one than a smaller one, but most economists agree the standard 25 basis point cut is what will be delivered by the RBA this afternoon.

We should also note that Mr Lew, like other retailers, is under pressure from online trading and Mr Lew is spearheading calls for the GST to applied to online transactions under $1,000, so that's another front.

However financial markets are factoring in a 93 per cent chance of a cut to 3 per cent this afternoon, because of weak economic factors we've been talking about, like flatling retail sales, lower company profits and weaker commodity prices.

And just this morning, building approvals have joined that weak pack, down 7.6 per cent in October.

So when you add the uncomfortably high Australian dollar, a rate cut this afternoon can be justified according to Westpac's chief economist Bill Evans.

BILL EVANS: We think the case for lower rates is quite strong, a big challenge for the Australian economy is to fill that hole that will be created when the mining boom slows down, we need to stimulate those interest rate sensitive parts of the economy with things like retail sales, building approvals, that's not happening to the degree that we need it to happen and the slow-down in mining is only about a year away.

So we need lower rates and we would welcome a rate cut today.

ELEANOR HALL: That's Westpac's chief economist Bill Evans.

Now Peter, you mentioned the Australian dollar is a factor in the rates debate, what is the dollar doing today?

PETER RYAN: Well yesterday when those very poor retail sales figures came out, the Australian dollar went as low as 103.93 US cents, made a bit of a recovery yesterday afternoon after that but today has been back down just over 104 US cents in anticipation of a rate cut.

Now what a lot of people have been talking about, what happens if there is a surprise today, economists are wrong again and the RBA stays on the sidelines because of inflation concerns.

In that case there are fears that the Australian dollar could actually rocket above 105 US cents and provide no relief at all for the economy, in particular exporters and retailers like Solomon Lew.

ELEANOR HALL: We'll know that at 2:30 Eastern Time this afternoon. Thanks very much Peter Ryan our business editor.