Christmas is coming and interest rates are getting slim.

Interest rates are at a three year low after the RBA slashed rates by .25 basis points to 3.25 per cent, earlier today.

The Australian Retailers Association boss Russell Zimmerman says the Reserve played Santa by cutting rates in the lead up to the busiest time for already struggling retailers.

The new interest rate is effective from tomorrow (Wednesday) but it is uncertain if all the banks will follow suit, although the Bank of Queensland has already pledged it would cut standard variable rates by 20 basis points to 6.71%.

“With retail sales showing no sustained growth over the past few months amid weak consumer sentiment, the RBA has played Santa Claus by cutting rates early,” ARA Executive Director said.

“Consumers have also been granted some relief from their household budgets as they continue to grapple with increased utility costs as a result of the carbon tax and now have some freedom to start thinking about Christmas shopping.”

While rate cut decisions are no “silver bullet” for the troubled retail industry, there is hope among the retail sector that some of the financial pressure on shoppers will now ease, making way for growth, he added.

Betta Living CEO Graeme Cunningham told ChannelNews he believes the rate cut will help boost sales including consumer electronics, an industry already hit by price deflation and severe competition both at home and from overseas operators.

“I believe it will help consumer confidence and spending,” he said this afternoon.

RBA Governor Glenn Stevens cited the softening labour market, weakening global economic outlook and “subdued ” property market among the factors that prompted the Reserve to push for the lower than average interest rates in the medium term. 

“Consumption growth was quite firm in the first half of 2012, though some of that strength was temporary,” Mr Steven noted.

The ARA is urging all banks and lending institutions to pass on the rate cut to their business and consumer borrowers in need instant relief from their mortgages.