Glass Half Full View: where to with equipment interest rates?

In the middle of quite a grim situation in many areas of the country with COVID lockdowns, the RBA Governor Philip Lowe provided a light-hearted conclusion to his appearance before an Economics Committee of the House of Representatives. Appearing via video link, Dr Lowe had provided the committee with a comprehensive explanation of the RBA’s Quarterly Statement on Monetary Policy which included rejecting suggestions that the extended NSW and other current state lockdowns would plunge the country into a recession. What could be taken as confirmation of his quite positive outlook, he showed his coffee mug to the committee members which was printed with the words ‘half full’. All watching will no doubt be hoping Dr Lowe’s positivity flows through to real returns for the economy. Jade Equipment Finance provides a viewpoint on where to with equipment interest rates.

With the economy showing a remarkable recovery over the first half of 2021 and many businesses taking advantage of the budget tax measures to acquire new equipment, the new virus outbreaks and resultant lockdowns have been a shock to the system at a minimum. For those still to enact their equipment investment plans this financial year, one of the key questions is – what will happen with interest rates? Will Dr Lowe be right and a snap recovery quickly follow the snap lockdown? Or will this setback drive interest rates up?

As always, we have reviewed the latest RBA Board statement and the quarterly monetary policy report and provide an update on what businesses may expect based on the Bank’s decisions and outlook. In addition we address a number of other concerns which we consider may be playing on the minds of many business operators across a range of industry sectors.

August RBA Decision on Rates

As per the usual scheduling, the RBA Board met on the first Tuesday in August, the 3rd, to discuss and deliver their decision on the official cash rate and monetary policy. But this was not the only input from the RBA that week, with the release of the banks’ quarterly statement on monetary policy and the mentioned above appearance by Dr Lowe at a committee on 6 August. The outcomes of all three events can be considered concurrently to provide a longer term outlook for economic activity.

The August Board meeting resulted in an expected decision that the official cash rate was held steady at the historic low rate of 0.1% The Board has not moved on rates since November 2020 when the official rate was cut to the current level. In addition and to continue supporting the economy with monetary policy, the existing bond buying program would proceed as scheduled.

The RBA further confirmed its intentions to not consider lifting rates until the rate of inflation was sustained in the 2-3% range and unemployment was below 4%. Inflation is currently sitting at 1.75% and unemployment 4.9%. As mentioned in statements over the past few months, the Bank does not expect this to occur until 2024.

Doubt has been cast on the economy’s current good performance as a result of the significant COVID outbreaks that have caused lockdowns in multiple states. Dr Lowe stated that the RBA did expect the September quarter to show a decline in GDP growth but that other serious outbreaks (most likely referring to the Victorian experience) had resulted in a swift bounce back. He expected this to occur with the current situation.

In opening comments to the Economic Committee, Dr Lowe noted that not all areas of the country were impacted by current lockdowns and certain areas and sectors remained on an upward trajectory.

When questioned in committee if the extended current lockdown would result in a nation-wide recession, Dr Lowe responded that that was not expected. It was expected that the economy would bounce back. The extent and timing was uncertain but before the end of 2021.

Of course not all analysts, including some at the major banks, agree with the RBA’s outlook so the full outcome will remain to be seen.

Equipment Finance Outlook

While we always maintain a cheaper interest rate approach to equipment finance, with the official cash rate remaining at the current low rates, the August statements do not impact the rates we are offering on equipment finance.

Lenders that source their own funding from international channels may have higher costs of funding as rates vary across the global finance market. To counter any increases in lending rates by any individual lenders, Jade Equipment Finance is well-placed with a large choice of lenders. We are accredited with a vast number of banks and non-bank lenders which enables us to source the cheapest rates on equipment acquisition loans.

Relatively new and start-up businesses that are considering applying for low docs and no docs equipment loans, may be wondering how the current outbreaks and lockdowns is impacting lender sentiment and how that may affect their loan prospects. During the 2020 crisis the banks did pull back on lending. But in this current situation, that general trend is not being seen.

All equipment loan applications are considered on an individual basis and as noted by Dr Lowe, not all areas of the country are currently affected. In sourcing low docs/no docs equipment finance quotes we have access to specialist equipment finance non-bank lenders that are flexible and offer highly attractive loan deals.

Another key concern may be for those requiring bad credit equipment finance. Will bad credit loans be more difficult to achieve? It is always advisable that loan applicants address their credit profile to fix any errors prior to application and to focus on maintaining and building as good a credit score as possible. That means not falling behind with existing payments and commitments. We have access to lenders that do provide finance to bad credit applicants and we welcome enquiries to pursue these avenues for your business.

Along with many others in the finance sector, we will be closely watching the economic data over coming months to see if Dr Lowe’s half-full mug fills up and the RBA’s positive outlook is realised. Meanwhile, our lending services are fully operational with business as usual.

Contact Jade Equipment Finance on 1300 000 003 to discuss your equipment finance requirements