Pause in interest rates up for discussion by RBA in April – but so could be an increase

After a run of consecutive interest rates increases from May through December 2022, it was revealed in the minutes of the RBA Board’s December meeting that a pause in rate rises was discussed. This revelation was no doubt met with a glimmer at least of optimism, especially by business operators looking to invest in new equipment.

That optimism was tempered somewhat by the fact that a return to a higher 0.5% rate hike was also discussed at the same meeting. The Board finally deciding the strongest arguments were for a continuation of the 0.25% increases.

At the Board’s first meeting for 2023, in February, there was no mention of a pause being discussed. But with the release of the March meeting minutes, it is now known that a pause in rate rises is once again in the mix. The Board discussed how the point would arrive where it would be appropriate to leave the cash rate steady. RBA Governor, Dr Philip Lowe, mentioned this in a speech after the March meeting, saying we were nearing such a situation.

The March minutes reveal that the Board agreed to discuss if conditions were appropriate to keep rates steady at its April meeting – now just over a week away. Great news. Yes and no. At the same meeting, the Board repeated its comment that it was likely that further rises in interest rates would be needed.

These revelations highlight the value in reading the minutes of the RBA meeting for a more thorough overview of the outlook for the economy and interest rates in particular. Jade Equipment Finance provides a summary of the RBA March meeting minutes to assist business owners with major acquisition planning with finance.

Topics covered in Board discussions include economic issues in regard to both the global and the domestic economy. Discussion of data pertaining to certain sectors such as retail and construction, can receive special mention. Business owners in those industries may benefit from reading the full document when budgeting for new equipment finance.

In considering the content, be aware of the timing of the meeting – 7 March. Several issues relevant to interest rates, have emerged after that date – global banking problems and unemployment figures. These and other data releases will no doubt be discussed by the Board at the 4 April meeting.

Global Economy

Inflation rates are still above the targets as set by individual central banks but an easing was recorded over the last few months. In many advanced countries, unemployment remains at quite low levels. As a result of the approach to containing the pandemic, China is only in the initial stages of its post-pandemic recovery, when compared with other countries.

Domestic Economy

February data confirms the expected slowdown in December quarter and into early 2023. The main themes for the Australian economy were essentially unchanged. Investment by the business sector had eased but the Board considers the outlook to be positive.

The January employment data is subject to seasonal factors, making it difficult to assess the overall labour market. Wages growth is of concern. Data shows this indicator increasing less than had been expected on the back of strong quarterly figures for September.

Also of major concern is the lack of growth in productivity. The past 3 years has not shown any net growth in this area. As such, businesses are not realising an offset against rising labour costs which had posted a 3% increase over that timeframe.

Due to the volatility which can exist in some individual monthly figures, it is noted that the Board is waiting for the February CPI data rather than drawing conclusions from the January figures.

Interest Rates – Monetary Policy

The discussion about the monthly rate decision – monetary policy, notes how the most important data – GDP, wages growth, labour market and inflation, was all ‘softer’ than had been anticipated. Specifically, the inflation rate remained too high and the forecast was for it to stay over the target range of 2-3% for 2 years. Due to these considerations, the Board agreed that a further interest rates rise was required.

The Board announced a further 0.25% increase to the cash rate and said it was likely that more rises would be required. Rates however, the Board agreed, were in ‘restrictive territory’ and uncertainty surrounded the economic outlook.

The discussion on holding rates steady was included at this point in the meeting. The Board agreeing there would be a point when this was appropriate. The lag between rate rises being seen in the economic data was discussed and how this created complications in assessing the outlook.

With further data to be released in the upcoming timeframe, it was agreed that pausing rate increases would be considered at the next meeting.

Planning Equipment Finance

Business owners planning equipment purchases with finance over the coming months are now faced with two scenarios to budget in – rates on hold and further increases. The response from the major banks has been somewhat mixed following this meeting. Westpac downgraded its forecast for the cash rate maximum to 3.85% while the ANZ held with its original outlook of 4.1%.

We appreciate that the next few months can be critical as operators finalise new machinery and equipment acquisitions before the end of the financial year. Even more relevant this year with the end to temporary full expensing also on 30 June.

Whether it's Concrete Pump Equipment Loans - Construction Finance, Fit Out Finance - Equipment Loan Broker, or Commercial Equipment Financing - Sheet Metal Machinery, we strive to provide cost-effective, viable equipment finance solutions.

We continue to work with individual operators to source and secure the cheapest interest rates from our vast lender panel to ensure cost-effective, workable equipment finance solutions. For further indications and direction, operators may stay across the latest data releases from the Australian Bureau of Statistics ahead of the 4 April RBA cash rate decision.

For cost-effective equipment finance with better interest rates contact Jade Equipment Finance on 1300 000 003