It has been an action-packed period of major announcements – Federal Budget 2022/23, the Federal Election called and the Reserve Bank monthly meeting re interest rates. All major events which can have implications and impacts on business operators and on equipment finance. As we provided an overview of the impacts of the Budget on equipment finance last week, we now turn attention to the significance of the RBA’s April decision to hold the cash rate at the current record low.
The decision not to increase the rate was not surprising in itself. While a rate rise is highly expected in the near future very few expected the Board to act in April. But the statement announcing the RBA Board’s monthly decision is where the real interest lies.
This overview of key aspects and commentary may explain to business owners the importance and significance of the RBA April hold on equipment finance moving forward.
RBA Holds Rates for April
As Tuesday 5th April 2022 approached, the talk about the RBA Board moving to increase interest rates had intensified. Inflation has been surging, unemployment dropping and these were they key targets the RBA Board has repeatedly stated as significant to any decisions to increase the cash rate.
But the Board made the decision to leave rates at the current 0.1% for at least another month. The decision may appear on the surface as ‘so what’? The real interest is found when you read the decision announcement and consider the tone of the statement.
The consistent message over many months of these monthly RBA announcements has been the mention of the central bank’s ‘patience’. It has been a recurring phrase – ‘prepared to be patient’ – which has appeared in the statements and has been stated by Governor Philip Lowe in speeches and presentations.
Come April 2022 and patience is not mentioned. This was immediately noted and reported by finance media and analysts and interpreted as meaning a rate rise was no imminent. Remember, it was not that long ago (several months) when the RBA was talking 2023/24 for the cash rate to be increased. So this change is quite significant.
Key content in RBA Board April statement:-
- Spending and investment by the business sector is continuing to show a pickup.
- Resilience continues to be shown across the Australian economy.
- Central RBA forecast is for unemployment to fall further from the current 4% in this year.
- Only gradual but further wage growth is expected.
- Global events including the invasion of Ukraine was mentioned as a factor driving global inflation.
- Fuel prices and rising pricing of many goods impact on further increase in inflation.
On the issue of when an increase to the cash rate may be made, as is the normal practice, no specific timeframe was provided. The statement says that the Board is awaiting further evidence that the current rate of inflation will actually be sustained in the 2-3% target range.
That evidence is expected in figures which will be released in the near future. These figures will be assessed by the RBA Board as evidence of targets being reached and any increase in the official cash rate applicable.
Reactions, Predictions, Outlooks
Many in the financial markets had already reacted to the prospect of a rate rise in the future and priced accordingly. The reaction to the April decision and the changed tone has been picked up as the strongest indication yet that a rise in interest rates will be made in the very near future.
Broad consensus appears to be pointing to June for that much-anticipated move by the RBA. It has been 12 years since interest rates last rose, so it will be a momentous event. All four Big Banks have come out to state the 7 June RBA meeting as being when they expect to see a rate rise.
Many are tipping not just one, but several increases in the cash rate over the course of the remaining months of 2022.
Equipment Finance Repercussions and Impacts
Keeping rates on hold for now, means that our cheap equipment finance rates remain in place. For those with fixed interest rate equipment and machinery finance, loans will not be impacted by any change in interest rates. That rate is locked in for the full finance term.
When the RBA does act, the resulting cash rate increase will flow through to the lending markets. The amount that equipment finance lenders actually lift their specific rates will be based on individual decisions.
Any change to interest rates would be expected to be incremental. But even an incremental increase can significantly increase the monthly equipment finance payment. Refer to our Equipment Finance Calculator to see the effect of a slightly higher interest rate on repayments.
Any move by the RBA to lift rates does not however mean that Jade Equipment Finance will no longer be offering cheap equipment and machinery finance. We have a long-standing commitment to always achieving cheaper and better interest rates for each of our customers and that approach remains unchanged.
Wherever possible however, business owners would be strongly advised to act quickly with equipment, plant and machinery acquisitions while interest rates remain at record lows.
Contact Jade Equipment Finance on 1300 000 003 for 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.
