Cheap interest rates combined with asset investment incentives have made acquiring new plant, machinery and equipment with equipment finance an extremely attractive proposition over the past two years. But how long will that scenario remain? Some insight into what may happen with interest rates in general was provided with the RBA’s monthly decision on monetary policy on 1 February 2022.
The Board had not met since the first Tuesday in December 2021, which is standard practice, and in the ensuing period a number of factors have increased the call from many corners for the RBA to move on rates. During 2021 much of the commentary around an early rate rise was from the surging prices in the housing sector. More recently those calls have intensified as a result of the recent surge in inflation.
While the RBA had consistently indicated that 2024 was the timeframe that they forecast conditions to suit a rate rise, that timeframe may now be moved forward by quite some time, if analysts and others are right. For at least this month, the RBA has kept the official cash rate on hold.
When a rate rise does occur it will be quite the milestone. Australia has not had a rise in the official cash rate for more than 10 years. Compared with previous periods especially in the early 1990s, many current business owners and other borrowers have certainly enjoyed very attractive borrowing rates.
But complacency should not be entertained. A rise will come at some point and that will typically flow through from the cash rate to most lending sectors. By how much say equipment finance may be impacted by a cash rate increase will depend on individual lenders. As we are accredited with multiple banks and non-bank lenders, we have the capacity to source the cheapest rates across a vast range of the equipment finance sector.
To grasp what is happening in regard to interest rates, we have summarised the RBA’s February statement for your convenience.
February Interest Rate Statement: RBA
The first RBA Board meeting for 2022 was held on Tuesday 1 February and a statement issued following the meeting which outlines the decisions made and rationale behind those decisions.
In short, the Board kept the cash rate on hold at the 0.1% rate. It has held the rate at that level since November 2020. Several cuts were made during 2020 as part of the monetary policy approach to stimulate the economy in response to the economic effects of the coronavirus pandemic.
After each of its meetings in 2021, the RBA Board has stated its targets in order to trigger a rate rise. Those targets being inflation sustained at 2-3% and unemployment around or below 4%, approaching full employment levels. The timeframe when those conditions were expected to be in place was given as around 2024.
The main take-outs in regard to interest rates from the RBA’s February meeting include:-
- The Omicron outbreak while affecting the economy does not appear to have ‘derailed’ recovery.
- A further uptick in spending is expected as cases of Omicron decline.
- Central forecast: GDP growth 4.25% 2022; 2% during 223. The forecast is supported by households and businesses holding good balance sheets; the support provided from the macroeconomic settings; and from the amount of projects in the pipeline for construction sector.
- The coronavirus pandemic still continues as a major cause of uncertainty.
- Continuing trend down in unemployment figures to the December 4.2% show labour market has is recovering strongly.
- Job vacancies are high which indicates further improvements should be made in unemployment.
- Forecast for unemployment levels: late 2022 at sub-4%; end 2023 in the region of 3.75%
- Inflation increasing at a faster pace than expected.
- Petrol prices, supply chain problems, escalating costs/prices for new-build homes impacted the CPI inflation.
- Central forecast: coming quarters further increase; decline in 2023
The RBA confirmed it is prepared to adopt patience in regard to raising rates and will be monitoring the key factors. The targets to trigger a rate rise remain 2-3% inflation and closer to full employment. It is too earlier to conclude whether or not the current inflation surge will be sustained within target.
No timeframe such as previously stated 2024, was mentioned in the announcement.
Equipment Finance Interest Rate Outlook
The day after the RBA Board meeting, Philip Lowe, Governor of the RBA made a keynote address which covered forecast for the economy. In this situation he noted that Australia had a unique opportunity to achieve a level of unemployment not seen for 50 years.
The current economic situation has triggered a raft of commentary from many commentators and analysts with some predicting a rate rise between May and August. That is the opinion or viewpoint of individuals.
What is looking more certain is that the official cash rate will be increased at some point in the nearer rather than further future. By how much and exactly when, is up to the RBA Board. In the interim, operators can take advantage of our current cheap interest rates across our finance portfolio.
Securing fixed interest rate equipment finance ensures that same cheap rate will be applied for the full up to 7 years of the loan term.
Contact Jade Equipment Finance on 1300 000 003 for a quote on cheap interest rate equipment finance.
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.
