The RBA Board met for its monthly interest rate decision on 4 October and the decision was yet another increase to the cash rate. It was widely expected that the RBA would increase interest rates in October but there was also pressure building for the central bank to ease back on the rate rises. The reasoning behind the pressure relating to the risk of recession as households and business struggle with inflation and the effects of higher rates.
The October decision may be seen as taking a middle-ground with a 0.25% and not the 0.5% increase as seen for the previous five months. But the increase does take the cash rate to the highest in 9 years at 2.6%. This makes it now 6 increases and according to Governor Lowe, further increases will be expected as the RBA seeks to work towards inflation falling back to its target of 2-3%.
The rationale behind RBA decisions and its forecasts and outlooks are provided in the monthly rate decision statement and in the more detailed paper and meeting minutes which are published a few weeks after each meeting. The RBA Governor Philip Lowe very often also delivers presentations and speeches to industry and business groups following the monthly Board meetings. These speeches can often cover other ground around economic conditions and provide further insight into what may occur to interest rates in the future.
We fully appreciate that not many business operators will be in a position to refer to these documents and have the time to fully process and assess the information and how it may impact their business. We have extracted the key points here and provided a brief recap on how the October rate decision may effect equipment finance.
RBA Cash Rate Decision – October
Many of the same comments made in the September and other monthly statements for 2022 were included in the October posting. However, there are some notable new wording and inferences that could be significant. As mentioned in RBA statements since inflation started surging and the current rate rise cycle commenced, the Board again stressed its commitment to getting inflation back down to that 2-3% level.
As has also been mentioned previously and was included again for October is the mention that it could be expected that more rate rises would be needed in the time ahead. For businesses that have equipment acquisition plans on the back-burner, that may be the motivation to more those plans to the hot plate and start the process before further rate hikes.
An interesting new comment in the October statement was that, over a small period, the official cash rate had been increased substantially. This comment has been picked up and noted by media as possibly the acknowledgement that a slowing down of interest rate rises is needed. The Board notes that this factor was reflected upon in making the October decision.
Additional points to note in October RBA statement include:-
- Inflation in Australia is too great as it is in many parts of the world.
- The reasons for the rising inflation are noted as very much due to issues globally.
- Factors in the domestic economy are also the cause of inflation rises. In particular that supply is being outstripped by the high level of consumer demand. Many businesses will relate to this issue as they have seen they own operations restricted by issues in relation to supply chains and labour shortages.
- The expectation by the RBA for the rate of inflation is to increase to 7.75% in this current year, next year drop to around 4% and near the 3% target in 2024.
- Unemployment at 3.5% in August indicates continued tightness of the labour market. A further fall in unemployment expected prior to increasing as growth in the economy slows.
- Governor Lowe also repeated the comment from previous statements regarding a narrow way to achieve the target level of inflation while keeping the economy on its even keel.
The stand-out comment for businesses considering asset acquisitions with finance is in regard to further increases in interest rates expected in the coming period.
Equipment Finance Rates
Banks and non-bank lenders typically follow RBA rate rises with increases in the interest rates they apply to their lending markets. Equipment finance interest rates will likely be affected by the RBA October decision but Jade Equipment Finance maintains its better interest rates policy.
With rates varying across the lender market and across different industries, businesses can engage our services to assist in sourcing the cheapest rate to suit their requirements. With our multiple accreditations, we have the resources to assist businesses to quickly access the cheapest equipment finance rates available.
The next rate rise may come at the November RBA Board meeting. Acting on purchases prior to further rate rises may result in a significant savings on equipment finance.
To source cheaper equipment finance as interest rates rise, 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.
