As a business operator and/or possibly a home mortgage holder, you’re most likely keenly aware of the increasing talk around the prospect of an interest rate rise in the near future. The talk around this topic commenced as the property market prices accelerated as demand for housing spiked due to the historic low interest rates of 2021. But the reasoning around the call for a rate rise and who is now talking an earlier than expected increase has shifted.
From finance analysts and commentators we’re now hearing talk of a 2022 rate rise by senior people in the major banks and senior government personnel. When it comes to putting rate rise talk at these levels into the context of what it means for your own proposed equipment finance, it can be a challenge.
To simplify and clarify some of the technical aspects, we’re updating on what has been said and what has happened recently on the subject of interest rates. A simplistic interpretation is that any interest rate rise to the cash rate flows through to lending markets including equipment finance.
A rate rise will be unknown territory for many business owners and operators. The last rise in the official cash rate was in November 2010. If you’ve started a business over the past 11 years, then chances are, you’ve never experienced rate rises. If you’ve started a new operation in the past few years then possibly all you’ve known is the current historic low rate scenario.
The RBA cut the official cash rate in 2020 as a pandemic stimulus measure and it reached its current historic low of 0.1% in November 2020. Borrowers have enjoyed low borrowing rates across many markets as a result. But that situation looks set to change.
The RBA had anticipated that the economic conditions would be suited to a rate rise around 2024. But that is now looking more like 2022 and some say it could be as soon as June. This could be the motivation you need to move your equipment acquisition schedule forward to capture finance at the current low rates prior to any rate rise.
Who’s talking rate rises?
Answer: pretty much everyone. But more significantly recent comments have been made by the Commonwealth Bank of Australia (CBA) the largest lender in Australia and one of our key lenders at Jade Equipment Finance. As a major source of lending, commentary from the CBA is always noting. The report is that the bank expected June to be the month for a rate rise.
Another notable voice was that of Treasury Secretary Dr Kennedy in a Senate hearing. Dr Kennedy said rates needed to be normalised with an increase. He did not state any anticipate timeline which seems extremely appropriate as he does sit on the RBA Board.
On the other hand, others are talking ‘wait’ as Australia has a golden opportunity to achieve full employment as a result of the current low interest rate scenario. After the February Board Meeting, the RBA Governor Philip Lowe reiterate earlier comments that the central bank was prepared to be patient in regard to a rate rise.
The Prime Minister and Treasurer, while not responsible for cash rate decisions, also commented on the opportunity for unemployment to go down to record lows.
What the Data Says
The key data that the RBA considers in terms of a rate rise are inflation and unemployment. Its targets 2-3% sustained inflation and unemployment possibly sub the 4% figure. The January unemployment figures recently released show unemployment holding steady at 4.2%. No change since December but clear that Omicron has not has a devastating effect on the economy or derailed the recovery.
Inflation is increasing and businesses and households are feeling the pain with some price rises. Some price rises especially in building supplies and materials are being driven by supply and demand issues.
Key dates to watch for more significant updates on interest rate rises and economic measures will be Tuesday 1 March for the RBA Board meeting and 29 March for the Federal Budget.
Equipment Finance-Rate Rise Connection
For businesses planning an investment in new plant, machinery or equipment with finance, the signs are pretty clear. Secure your purchase and finance prior to any cash rate increase to ensure you achieve the cheapest interest rates. While Jade Equipment Finance guarantees better interest rates, if the entire market moves, then our rates will be better now than in possibly a few months’ time.
Lenders will respond to an RBA rate rise depending on their own circumstances, competitiveness and costs. Many of our non-bank equipment finance lenders are flexible and our consultants negotiate hard to achieve the cheapest rates for our customers.
Rates typically increase in small percentage increments but may increase each month over several consecutive months. To find out for yourself exactly what this could all mean in relation to what you intend to purchase, use the Equipment Finance Calculator.
Vary the interest rate you enter by small increments while holding the other figures steady. You’ll see how the repayments change. That will give you a very clear indication of exactly what a cash rate rise could mean for your equipment finance.
The prospect of an earlier than expected rate rise has really become a case of which month this year rates will start to rise. Operators that get in early with their acquisitions with finance may be well-placed to avoid a higher interest rate.
Contact Jade Equipment Finance on 1300 000 003 for a quote on 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.