It’s hard to believe it was only a week ago that we posted an article covering the RBA’s June cash rate decision and the Board’s outlook for the coming period. A number of key economic data has since been released and further information have come to hand since that meeting which have implications for interest rates. Specifically that there are strong signals that additional cash rate rises are coming and business operators should secure equipment loans promptly to avoid lending rate rises.
After implementing cash rate cuts to support the economy during the pandemic, the Reserve Bank remained patient through late 2021 as inflation began to surge, waiting until May 2022 to instigate its first rate rise. This followed the long period since November 2020 of extraordinary record low interest rates. The lowest on record. A scenario which made lending extremely accommodative with low lending rates across most forms of loans and finance.
The 0.25% May rate rise was followed with the 0.5% rate rise earlier this month as the RBA rolls out what it is referring to as normalising monetary conditions, aka interest rates, and withdraws the support which is no longer seen as required by the economy.
While the rate rises were totally expected, the reality of it actually happening, may take a bit for some operators to absorb. But time is of the essence. Business owners looking to acquire new plant, machinery and equipment with finance are urged to act. While we do have access to a vast selection of the lenders in order to source the cheapest interest rates, decisions by the RBA are relevant to all our banks and lenders.
The RBA considers a range of economic data when making decisions around interest rate moves. Having a basic understanding of what conditions and data effect those decisions, may assist business owners to make their own decisions around timing of equipment acquisitions.
We update on what has happened in the past week which may impact lending rates moving forward and equipment acquisition decisions right now.
May Unemployment Data
The May unemployment figures were released last week and showed the rate steady at 3.9%. This is the lowest rate of unemployment in Australia in 40 years and highlights the tight labour market conditions. While a low unemployment rate is a target for economies, the tight labour market is presenting significant challenges in many sectors.
Being unable to fill job vacancies can be limiting a business’ capacity to operate to its full extent. This is an issue which was mentioned in recent RBA statements.
Unemployment is one of the major sets of data that the RBA analyses when making its decisions around the cash rate. The low rate with possible further drops ahead, is seen by some as increasing the pressure on the central bank to further lift interest rates.
Inflation Continues Upward
The outlook for inflation has changed in the past week. When releasing the 7 June Board decision, RBA Governor Lowe stated that the rate of inflation was expected to hit 6% towards the end of this year. But days after that statement was released, that 6% was revised upward to 7% in a media interview given by Dr Lowe. Specifically 7% by around December.
Surging inflation is the major reason that rates are on the way up. So forecasts for further rises in this key economic indicator and further upgrades, strongly point to another rate rise in July. 7% rate of inflation, if it gets to that, will be something totally new for many Australians as it has not been recorded since the 1990s.
Looking to the RBA’s 5 July meeting, some economists are predicting that the rate rise could be another 0.5% or even 0.75%. Cash rate rises flow through the banks and lenders with increased interest rates in their relevant loan markets.
Minimum Wage Increased
The Fair Work Commission brought down its much awaited decision on the minimum wage case last week also. The increase in the vicinity of 5% will be much-appreciated by the workers affected and broadly considered as deserved.
From a business perspective the increase does have the potential for further pressure on prices as increase to business costs are translated in higher prices for consumers and customers. This in turn has the chain reaction of fuelling inflation. So more reasons for action by the RBA on rates.
Certain events and activities in other economies can also impact what is happening here in Australia. In regard to inflation and cash rate hikes, both the US and the UK are experiencing both. The domestic economy is also impacted by the ongoing disruption in supply chains and the rising costs of freight to get goods into the country.
Equipment Loans Interest Rates – How we can help
From that massive big picture view, we focus down to what is most important to our customers – interest rates on equipment loans and finance. As we mentioned above, decisions by the RBA are felt through lenders increasing their rates.
Rising interest rates places increased importance on businesses to secure the cheapest interest rate finance possible when purchasing new equipment. With equipment finance terms extending over up to 7 years and the loan amounts in many cases substantial, even a small differential in the interest rate can be extremely significant to the bottom line.
If you’re wondering how significant, simply use our Equipment Finance Calculator to find out.
Despite all this news about rising interest rates, be assured that Jade Equipment Finance can still assist with our better interest rates commitment. Our specialist equipment lenders in particular are flexible and open to negotiations when it comes to rates and loan conditions. Allowing our consultants the opportunity to source cheaper rated finance for our customers.
We also assist our customers by structuring the finance – the term, varying the residual or balloon and negotiating on any specific conditions, to achieve affordable repayments and to ensure the loan works with the business cash flow and achieves a better bottom line.
But, we reiterate, business should act as quickly as possible prior to further rate rises to ensure they secure finance at current lower rates.
To discuss workable equipment loan solutions for your business contact Jade Equipment Finance on 1300 000 003
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.