After two months of significant rate rises, all eyes were on the RBA July rate decision. As predicted and pre-empted, the Reserve Bank Board lifted the cash rate by another 0.5% at its meeting on Tuesday 5 July. The RBA July rate decision sees the cash rate at 1.35% and represents a 1.25% increase in just 3 months and a wake-up call for those needing business finance. Significant increases and based on comments by Philip Lowe, Governor of the RBA, July will not be the last rate rise this year. The recent rises in the cash rate are a winding back of what the bank described as extraordinary support which was provided to stimulate the economy and returning interest rates to normal levels while addressing soaring inflation rates. Rate rise decisions by the RBA result in interest rate rises across loan markets including business finance products. Though the timing and amount of any lender rate rises will be guided by their own decisions and be determined by the central rates in the funding source locations. Many other countries are posting even higher inflation than in Australia and several central banks overseas have acted sooner and with larger rate rises than the RBA. Mr Lowe provided the customary explanation behind the Board’s July decision in the statement making the announcement. We capture the key points as background to the current scenario and insight into what could be on the cards down the track. For those that would like an even more extensive coverage, the minutes of each board meeting are released a bit later after each meeting. RBA Governor Explainer: July Board Rate Decision In announcing its July rate rise of 0.5% the RBA Board mentioned several key factors as being major contributors to inflation in Australia at the current time. These factors cover both local and international issues and are similar to those included in the statements issued in both May 2022 and June 2022. Briefly, the key contributors to inflation and areas of uncertainty include:-

• Issues related to the pandemic in overseas markets creating supply chain disruptions.
• The Ukraine conflict continues as a major cause for concern and is seen as contributing to Australian and global inflation.
• Demand for goods is strong and that places pressure on business in supplying to meet demand. Businesses in some sectors are facing supply issues which are limiting their capacity to meet that demand.
• Interest rate rises will assist inflation return to the bank’s 2-3% target but the effect will take time to be realised.
• Australia’s inflation rate is below that of some other nations.
• The demand and supply issue is also a domestic factor. Business capacity in some areas is being constrained by the labour issues. These relate to the shortages as Australia currently is near full employment with the lowest unemployment rate of 3.9% in around 5 decades.
• Supply not meeting strong demand is creating an upward pressure on prices.
• The 2022 floods are impacting prices especially in the fresh produce sector.

Inflation has risen to 5.1% which is well above the bank’s 2-3% target. The RBA forecasts further rises to the range of 7% before a decline to the target next year. It is expected that as supply disruptions ease at a global level, commodity prices will stabilise. The next meeting of the RBA Board is 2 August and prior to that, the CPI data covering the quarter to end of June will be available. Mr Lowe says the Board will be guided by the figures available in making the decisions around when and how much future rates will be. In the final comments in the July statement Governor Lowe says further steps will be required over the upcoming months. By further steps, that is taken as further rises in the cash rate. Business Finance Outcomes While Governor Lowe has said the Board will be guided by data yet to be released, several economists and other commentators have already come out with their predictions. They are varied with some saying the RBA will move as high as 0.75% in August while there are those that consider 0.25% the rise for that month. So mixed messaging in the actual amount but unison in regard to yes, it will happen. For businesses requiring finance, the messaging is unequivocal – secure the required financing as soon as is at all possible to avoid being subject to higher rates. We are already seeing our lenders raise rates as is customary following RBA rate hikes. Rate rises are not limited to asset acquisition finance but will be seen in commercial loans such as Overdrafts and Business Loans. Loans already in place with a fixed interest rate should not change. For those preparing budgets and forecasts for future acquisitions, our finance calculators can assist with calculating estimates. Another important take-out from this cycle of rate rises is the significance of achieving the best, the cheapest interest rate. Every basis point can mean significant extra dollars in finance repayments. Using our services can greatly contribute to achieving the goal of the cheapest interest rate finance and as such reducing the total cost of the loan. Contact Business Finance on 1300 000 033 to discuss how we can assist your business achieve better interest rate finance. 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.