Interest rates and the prospect of a rise in the cash rate by the RBA very soon is very much at the forefront of most news reports at the moment. In some cases even superseding coverage of the Federal Election and even becoming somewhat of an election issues. A rise in interest rates is a worry for many in regard to both personal loans and business finance. But fixed rate equipment finance can shield a business from an increase to their repayments and hence business costs as a result of a rise in the cash rate by RBA.
It doesn’t seem like that long ago that the RBA was saying it expected conditions to be in line for a rate rise in around 2023 or even 2024. The targets to trigger a rate rise being unemployment in the sub 4% range and the inflation rate sustained in the range of 2% to 3%. These figures are driven by economic activity and as far as inflation is concerned, also by global impacts.
Well, the Australian economy has recovered from the pandemic downturn much faster than the RBA had forecast and inflation is surging. Prices of many goods and services are going up and up and causing cost of living and cost of doing business pressure. Of course not all this is due to local conditions. Global events including the computer chip shortage, ongoing pandemic effects, general supply chain impacts and the war in Ukraine are playing their part. Inflation is surging on a global level and pressure is on the central banks to react by raising the official cash rates.
While the pressure on the RBA is rising in intensity, this type of pressure and commentary is not isolated to Australia. The IMF has also come out and said that central banks need to act on interest rates to curb the surging inflation rates as these levels represent a danger to many countries.
Interest rates have not been lifted in Australia for over 12 years. So many business operators will be novices in ways to negotiate a climate of rising interest rates in general and equipment interest rates more specifically.
As specialists in equipment finance and achieving the cheapest equipment finance, we provide this explainer of how the lending interest rate market in general, equipment finance rates specifically and how businesses can achieve fixed rate finance to avoid the effect of rises in the future.
Inflation and Interest Rates
The RBA dropped the cash rate during 2020 to address the economic effects of the pandemic. The objective being to make lending cheaper to stimulate especially business investment. This monetary policy measure complemented the Federal Government’s fiscal measures including the introduction of Instant Asset Write-off and temporary full expensing.
The cash rate has been left at the historic low of 0.1% since November 2020. At each of its Board meetings since that time, the RBA has indicated the target levels of inflation and unemployment that it saw as being the triggers to indicate a rate rise. Those essentially being 2-3% inflation sustained and 4% or less unemployment.
With Australia’s strong recovery, inflation has increased faster than many expected. The latest data for the March quarter saw the inflation surge to 5.1% and underlying inflation hit 3.7%. Definitely in the target range and most consider definitely sustained.
The RBA Board meets monthly with an expectation of a rise either at the 3 May meeting or the meeting on the first Tuesday in June. While the pressure is on to act, the RBA may wish to wait until the latest data on wages growth is available – due mid-May. This was mentioned in the April monetary statement.
The key point for business owners to take out from the rate rise scenario is how many! This May or June rate rise may just be the first of several hikes in the cash rate. The RBA may act in several months in 2022 and again in 2023 to address inflationary pressure.
When the RBA moves on the cash rate, lenders respond. That includes equipment finance banks and non-bank lenders. So it is quite feasible that we will see several increases in general equipment finance interest rates over the next 12 months.
What can businesses do? Purchase new equipment with finance as soon as possible and lock-in their equipment finance with a fixed interest rate.
Fixed Rate Equipment Finance
Key to not having equipment finance repayments continually increase as the RBA and subsequently lenders increase rates is to have the equipment finance interest rate fixed from the get-go. At Jade Equipment Finance, we offer fixed interest rates loans across our finance product range: Chattel Mortgage, Lease, Hire Purchase and Rent to Own.
Unlike say home mortgages which only have fixed rates for relatively short periods, fixed rate equipment finance is fixed for the entire period of the loan term – up to 7 years. So once the fixed and cheapest rate available at the time is secured, it remains unchanged. With the fixed interest rate secured, that ensures the repayments also remain unchanged.
Confidence and certainty around finance repayments can be of great assistance to business owners in budgeting and planning other business investments and acquisition into the future.
We offer fixed rate equipment finance for the purchase of a wide range of business equipment across all industry sectors to all types of businesses, regardless of type of size. Low Docs and No Docs Equipment Finance and Bad Credit Equipment Loans can also be acquired with a fixed interest rate.
To discuss fixed interest rate equipment finance speak with a Jade Equipment Finance consultant 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.