There are two interest rate hike decisions in the pipeline for today and later in the week. There are considerable risks behind both these decisions.

The first decision will be made today by the Reserve Bank. The economists are predicting a 0.25% increase to 4.75%. I don’t know the outcome, but I do know that lilting interest rates at this point is a high risk, because there is considerable softness in the retail sector.

Sales of most small shops are being maintained by heavy discounting that leaves margins in tatters. The overall economy has been insulated from this by the mining activity, increases in purchasing of services — such as those related to telecommunications — and, of course, the momentum in the building industry.

Back last February, the chief executive of Stockland, Matthew Quinn, said that if the official rate rose beyond 4.25% it would affect consumers and home buyers. When the Reserve Bank took that step it immediately affected demand. Quinn was right.

That does not mean that the Reserve Bank will not increase its bets today, but the further rates rise beyond the Quinn trigger of 4.25%, so the risks of causing a major downturn are increased.

But whether the Reserve Bank lifts rates or leaves them steady — the announcement will come at 2:30pm AEST —  the banks themselves are looking at a rate rise outside the official system. As Stephen Bartholomeusz explains, the banks’ interest rate margins were reduced in the three months to June 30, as more historic low-cost overseas borrowing was replaced by the current higher cost overseas loans.

The banks want to restore their margins. In theory, this action carries limited risk. The politicians are all talk and every time banks have moved up their rates beyond official interest rate levels there has been a lot of rhetoric from the Treasurer but no action. When NAB did not follow the other three majors there was flak, but it came to nothing. It is unlikely NAB will stand alone again. But the risk of a community backlash from a non-official rate rise is now much greater, and community ill-feeling is being reflected by an extremely aggressive anti-bank stance in the popular newspapers.

There is no doubt that the 4.5% interest rate level is hurting wide areas of Australia, so community anger will be white-hot if banks on their own lift rates further. But community anger will fade — the banks argue that the Treasurer has taken a tough line before, so what’s new?

What’s new is that we now have close to a hung Parliament. The independents could well foreshadow a private members bill taxing banks and there would be a lot of pressure on the ALP to support it.

It might not happen, but there is clearly a risk.

If we get the double whammy — a Reserve Bank lift and most (if not all) the banks lifting rates further — then have no doubt that the non-resource economy is in for a much tougher time. Those sluggish retail sales, which can be stimulated by discounting, will go into clear decline.

Maybe that’s exactly what the Reserve Bank wants. But I doubt it.