The RBA rate rise decision for August and the forecast for additional rises signals rises in business finance rates but cost-effective loans are still available. The rise of 0.5% announced by the RBA Board on 2 August was widely expected by lenders, economists, analysts and the business community. The amount of 0.5% was possibly even lower than some anticipated with at least analyst tipping a full 1% rise. The expectations were elevated after the publication of the latest data series for both inflation and employment by the ABS. Inflation at 6.1% and unemployment at 3.5% were certain to be key considerations by the RBA Board in its August decision as it mentioned waiting for incoming data in its July statement. While expected the increase will come as yet another blow to business operators seeking new finance who are working on recovering from downturns during the pandemic and facing challenges in fully-staffing their operations to achieve full capacity output levels. RBA rate rises are felt across the lending sector but business can utilise the services of broker-style lenders such as Business Finance to source better rates and more cost-effective finance. For those in the process of planning new acquisitions, we summarise the major messaging from the RBA Board’s August rate statement. August Statement from RBA Governor Lowe The RBA Board issues a formal announcement under the signatory of Governor Philip Lowe following its monthly interest rate decision meetings. The outcome of the meeting was a fourth rate rise for 2022 consecutively, lifting the official cash rate to 1.85%. A far cry from the 0.1% which had been held for around 20 months from November 2020 to May 2022. The Board reiterated that its highest priority was getting inflation back to target, 2-3%, over time. But at the same time ensuring the economy remained on its even keel. An interesting point in this regard was Dr Lowe’s comment that only a narrow pathway presented to achieve this desired balance. Also that uncertainties were present, especially with the global situation. The downgrade for the economic growth outlook globally resulting from high global inflation was noted. This is seen as the result of a combined number of factors:- countries lifting rates as part of adjusting monetary policy in the face of soaring inflation; the continued effects of Ukraine being invaded by Russia; and the response by China in addressing its recent outbreak of COVID-19 is also seen as significant. The current high 6.1% inflation rate is noted as the highest going back to the early part of the 1990s. Australia’s situation is seen as resulting from both global and domestic factors. The global factors as mentioned above and the supply-demand squeeze domestically. Many businesses are facing constrained capacity due to being unable to source staff in the current labour market. This is reducing supply at a time when demand is strong. This is resulting in the effect of rising prices. The floods which impacted many regions earlier in 2022 are also continuing to cause impacts on prices, especially in the food and fresh produce sector. For those planning acquisitions in the latter part of the year, it is worth noting the forecast for inflation. The peak is expected later this year at 7.75%. From there, a fall is expected next year to marginally above 4%. The target of around 3% is not expected until 2024. Further rises in inflation may trigger further rate rises, which the RBA has mentioned in the statement as being required. As far as economic growth, that is expected to slow in pace but remain strong in 2022. GDP 2022 growth is forecast at 3.25%. In 2023 and beyond to 2024, the forecast is to fall to 1.75%. Unemployment is forecast to drop even lower from the 3.5%. However, as the growth in the economy slows, unemployment may increase. One of the key issues of uncertainty for the RBA appears to be in the area of behaviour of consumer/household spending. Consumer confidence has dropped and households and businesses are experiencing pressures from both rate rises and from inflation. But the good employment figures indicate that work is being found and the RBA says that many households do have a finance buffer. Governor Lowe repeated that this current rise was yet another step in the process of normalising the monetary policy as the extraordinary support through low interest rates was no longer seen as required. Future rate rises are expected. The Board will be closely watching the data to determine the exact nature and timing of future rate rises. The next RBA Board meeting where a rate decision will be made is scheduled to be held on the first Tuesday in September. Business Finance Effects The major effect on business finance from a RBA rate hike is a general increase in interest rates. Though the exact size of any rise will be determined by the individual lenders. The rises can vary across the market so business owners seeking the cheapest rates need to either do a lot of research or engage lenders such as ourselves to handle the sourcing and structuring for them. The range of business finance products, their structure and features do not change with rate rises. But it’s worth noting that rates do vary across the selection of business finance products With rates on the rise, it may be the time to have a conversation with your accountant about possibly opting for a lower interest rate loan product than you usually select. An important factor to consider with all finance is the type of interest rate. Fixed interest rates are the most commonly sought rate type. But in some instances and for some finance products, a variable interest rate can be offered. A variable rate is vulnerable to rate changes. The next major announcement from the RBA is expected in September and a further rate rise is expected. To secure your finance requirements before another rise, contact us for a confidential, no-obligation discussion of your needs. Contact Business Finance on 1300 000 033 to discuss securing cheaper business finance before the next rate rise DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.