The first Tuesday of the month is always a key day for financial markets and those of us in the lending sector. This is the day that the RBA Board meets to consider what they will do in regard to interest rates, or more specifically, the official cash rate. While this is by definition the rate that banks pay on funds for overnight lending, it is the rate that forms the basis from which banks and lenders set their lending rates across all markets. The housing market is the most closely watched as home loans are the largest lending area. But at Jade Equipment Finance, we closely monitor movements in the official cash rate as any changes flow through to our lending rates.
The RBA has kept rates on hold since the last cut in November 2020 and the signals given from Governor Philip Lowe in recent times did not lead to an expectation of any change at the April meeting. That expectation was borne out with the announcement coming that the official cash rate would remain at the current rate of 0.1%. This is of course not the rate that Jade or any other lenders offer for equipment finance, but it does mark historic low interest rates across lending sectors. More info.
While the April 2021 decision was not significant in itself, except for those calling for a rate cut to dampen surging prices in the housing sector, the statement accompanying the decision sheds light on the RBA’s thinking and what could be expected in future announcements.
For those planning significant asset investments in the now, the near future or down the track, having an understanding of possibly where interest rates may go, can greatly assist the acquisition schedule.
RBA Statement, Intentions
Prior to the April board meeting, RBA Governor, Philip Lowe, had quite clearly stated that the RBA was looking for the economy to achieve key targets before any increase in interest rates would be made. The year as far out as 2024 has been regularly mentioned. The targets being sought are inflation at 2-3% and lower unemployment figures.
The statement acknowledges Australia’s above expected GDP growth figures and better than expected unemployment figures but notes they are not in the target zone as yet. They note higher commodity prices in April compared with January and the pleasing increase in global trade. But noted that while there is a global recovery being seen, it is uneven. This is despite the global efforts to expedite vaccination of populations.
Inflation is still below the 2-3% key level and the unemployment rate was also above the target level to indicate a rate increase. Growth is expected in the economy in both 2021 and 2022 but pressures are expected to keep wages and prices grow subdued over this time.
International Trends
While the economic signs in Australia have exceeded forecasts, we don’t exist in an insular trading or economic environment and global indicators also need to be considered. The day after the RBA’s April decision, the IMF (International Monetary Fund) came out with an upgrade of the outlook for Australia. In January 2021 the IMF forecast Australia’s growth at 3.5% and in April that was upgraded to 4.5%
Such an upgrade is positive and an acknowledgement’s of Australia’s impressive recovery. But in 2020 as a result of the pandemic, the Australian economy did contract by 2.29% so any increases are coming on the back of a significant low.
Some lenders may be sourcing funding from overseas sources at rates higher than those currently available in Australia. One eminent economist has noted that some global markets have already increased rates in anticipation of an increase in inflation. This increase has apparently increased the costs of the debt held by the Australian Government.
Equipment Finance Interest Rates
So how does all this talk of upgrades, forecasts and forward-looking targets play out in regard to the interest rate on your equipment finance?
Jade Equipment Finance arranges loans at fixed equipment loan interest rates so many holders of existing finance will not have any change to their loan over the finance term as the result of any changes to interest rates in general. As with many lenders, our rates are at historic lows and we continue to achieve cheap interest rate deals across our loan portfolio.
In respect to the commentary around international funding, Jade has accreditations with many and varied lenders. These include banks and specialist equipment non-bank lenders. This diverse selection provides us with the connections to assess a large market area when sourcing the cheapest equipment finance deals for our customers. Feel free to use our online equipment loan finance calculator for estimates on loan repayments.
While we monitor financial markets for trends and movements, our expectations are that our low interest rates will be available at current levels for some time.
The next meeting of the RBA board in regard to interest rates is set for 4 May, which is only a week prior to the handing down of the Federal Budget. Both key dates for the diary!
Contact 1300 000 003 for equipment lending deals.
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.
