Support for Reserve on rates decision

The Reserve Bank's surprise decision to leave interest rates on hold has been vindicated by new figures showing shoppers were retreating into their shells in the run-up to Christmas.

The 0.7 per cent fall in the value of retail sales through December - the last time the Reserve Bank lifted official interest rates - was partly offset by department stores and clothing outlets slashing prices to get customers through the door.

The RBA, which releases its quarterly statement on monetary policy today, surprised markets this week by leaving official rates unchanged at 3.75 per cent. The move was driven in part by a desire to see how past rate rises had affected consumers, particularly through the key retail trade data.

Sales in WA dropped 0.1 per cent, led by a 2.1 per cent fall in sales through the State's department stores. Food retailing dropped 0.6 per cent and sales of household goods ebbed 0.7 per cent.

But West Australians spent December eating out, with cafe sales up 2.9 per cent and takeaway food sales jumping 7 per cent.

While the value of sales tumbled, the actual volume was up 1.1 per cent in a sign of the strong discounting among retailers.

CommSec equities economist Savanth Sebastian said: "The Reserve Bank decision to leave interest rates has been validated by the latest retail sales result. The Reserve Bank is in effect biding time to gauge how the economy will hold up given the scale back in stimulus."

While retail sales fell away in December, other figures from the Australian Bureau of Statistics showed a surprisingly strong 2.2 per cent lift in building approvals in the same month.

Private home approvals jumped 3.1 per cent to be 39.5 per cent higher than a year ago, while approvals for other types of dwellings bounced 9.1 per cent to be 56.9 per cent higher. Home approvals jumped 3.3 per cent in WA with more than 1000 houses approved for construction in Perth alone.

HIA senior economist Ben Phillips said the strong result in approvals was driven by the impact of the Federal social housing stimulus, low interest rates through 2009 and the last wave of the first homebuyer boost approvals.