Close to rate pause, but RBA lifts interest rates 0.25%

The Reserve Bank of Australia Governor, Philip Lowe, said in a speech to a business summit, that economic conditions were getting close to being appropriate for the Board to pause interest rates rises. But those conditions are not quite right now and the Board proceeded as expected with a further 0.25% rise for March. In addition, the Board said that it expected to make further increases as they were likely to be required to bring inflation down to the target range.

The cash rate is now 3.6% with the lending sector reacting with various increases in their rates across markets including for equipment and machinery finance. This is now 10 rate rises consecutively since the first 0.5% hike in May 2022. The continual rises and indication of more ahead, means operators requiring finance for asset acquisitions should utilise professional broker services such as through Jade Equipment Finance, to secure the cheapest rates.

There will be variations across the lending sector and having access to specialist non-bank lenders may make a big difference in rate achieved, total interest payable, repayments and the overall investment in new assets. Also of assistance in planning asset acquisitions may be to understand the RBA’s thinking in regard to the economic outlook, business conditions, inflation and its forecasts for interest rates.

This summary of the RBA Board March monetary policy announcement and of Dr Lowe’s recent speech may provide further, valuable insights to assist with business decisions.

Monetary Policy Announcement – 7 March 2023

The Board of the Reserve Bank of Australia met for its scheduled meeting to discuss monetary policy (interest rates) on March 7th in Sydney. The decision to lift the cash rate a further 25 basis points was announced, as is standard practice, via a media release on the Bank website.

In the release, the Board notes:-

  • Inflation at a global level is starting to moderate, however remains elevated in services prices. There is a subdued outlook for the global economy as it will take time for inflation to drop to target levels. The CPI (Consumer Price Index) as released by the Australian Bureau of Statistics suggests December was the peak for Australia’s rate of inflation. The annual rate as at the end of the December quarter was 8.4% and the by end of January that had fallen to 7.4%. Good prices inflation is expected to moderate as a result of weakening demand and in response to the developments at a global level. Services prices remain high. Strong seasonal demand in summer for some services pushed up prices. Rents noted as increasing at very high rates. The rate of inflation is forecast to fall in 2023 and 2024 but not near the outside range of the target of 3% by the middle part of 2025. Economic growth has slowed as per the December quarter data. 0.5% growth in GDP for the quarter and an annual rate of 2.7%. The expectation is for growth to be at levels below the trend. There is a softening of demand in the home building sector as higher rates take effect. But investment by business has a positive outlook. Unemployment is still around near 50 year lows, indicating the continuing tight labour conditions. Some easing seen in the latest data. A price-wage spiral is seen as a low risk but the Board is remaining alert to the possibility. Uncertainty is seen around how fast and to what extent inflation will fall as spending patterns respond to tightened monetary policy – the recent run of interest rates increases. Also how spending responds to global conditions. This means several scenarios are possible for the Australian economy. Further interest rates increases are likely to be required as the priority for the RBA remains returning the current high rate of inflation to 2-3%.

    We look forward to reviewing the Minutes of this meeting when released on March 21 for more information on exactly what rate options were discussed by the Board.

    For more information, you can visit the website of the Australian Bureau of Statistics (ABS) to access valuable insights and data regarding inflation and economic indicators.

Dr Lowe Business Summit Speech

While the release announcing the March rate decision was typically brief, a far lengthier coverage of the economic conditions, inflation and monetary policy was provided by Dr Lowe on March 8. Dr Lowe was addressing the Australian Financial Review Business Summit. The full transcript of that speech is readily available at he RBA website.

There are some very interesting comments which will be of interest to operators in different industry sectors. But we have extracted just a few remarks which relate specifically to interest rates.

Dr Lowe said that interest rates are the tool that the Bank has to address high inflation, prevent it from becoming engrained and ensure this current period is only temporary. He pointed out the different channels through which monetary policy does work and how it takes time for the effects to be seen.

Dr Lowe elaborated on issues discussed by the Board at its meeting the previous day. One of the more notable comments was that the recent rate increases now have monetary policy in what he described as ‘restrictive territory’. But he said, this has been required and more increases are likely to be needed.

Another comment which was picked-up by many commentators in the business media was in relation to when a pause in rates may occur. Dr Lowe said that the conditions are closer to being at an appropriate setting to pause increases in interest rates. No specific timing was given, which is not unusual.

The Board next meets to discuss what next for interest rates in early April.

Equipment Finance Interest Rates

As has always been the case but further elevated in importance since the 0.5% rate hike in May 2022, the focus for businesses when seeking finance for new equipment is the cheapest interest rates.

Rates vary across the finance products and business in different industries and with different requirements will be offered varying rates.

The business finance lending sector is vast and can be competitive with cheaper rates to be found, especially through many of our non-bank lenders that do not operate within the same strict guidelines as the major banks.

Despite the ongoing RBA rate rises, Jade Equipment Finance continues to assist business owners with cheaper interest rates for more cost-effective finance.

If you're in the woodworking industry and looking for Finance For Machinery - Woodworking Equipment, we can help. We also provide a Small Business Overdraft option for those in need. And for comprehensive solutions, we offer Equipment Finance Loans & Leasing Australia wide.

For cheaper interest rates on machinery and equipment finance, contact Jade Equipment Finance on 1300 000 003