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Now is a good time to secure finance at attractive rates

February 1, 2019

The cash rate remains unchanged at 1.5 per cent (though the next move will likely be up); the RBA still expects the economy to grow, unemployment to fall and inflation to rise.

Let’s take a closer look.

Global economy

Global economic risks have risen, thanks to the US–China trade war, uncertainty around Brexit and falling export volumes. There is talk about how central banks may need to once again support their economies, but unemployment is falling globally, emerging markets are improving and the Brexit fallout looks like it will mostly be confined to Britain.

Financial markets

A year ago, equity markets were overpriced and credit spreads too narrow. Fast-forward 12 months and valuations are better. Markets are still volatile but the bigger concern is debt, which continues to grow amid concerns that upward pressure on interest rates might trigger a global sell-off.

Exchange rate

With the Aussie now trading at around 70 cents against the greenback (down from around 80 cents this time last year) it’s much closer to its historic level (around 71.5 cents), making things comfortable for importers and exporters alike.

Domestic economy

Confidence in the domestic economy dropped as 2018 wore on, thanks especially to the (still ongoing) correction in the housing market. But with low interest rates, an exchange rate at or slightly below its historic average and a likely boost from fiscal policy, things look okay. Unemployment is a key indicator of economic health; the rate is declining and should continue to do so well into 2019. Watch this space.

Inflation

The inflation rate is still under 2 per cent and is unlikely to reach the RBA’s preferred band of 2–3 per cent anytime soon. There are no expectations of price rises and any economic slowdown would make the target much more difficult to reach.

Asset prices

Here, we have seen changes in the past 12 months. House prices are falling in most cities but this has brought first-time buyers into the market. Lending standards have been tightened, driving low-quality applicants out of the market, helping to slow the increase in household debt.

Interest rates

Uncertainty rules. A majority of analysts and economists had confidently predicted modest rate rises in 2019 but now opinion is evenly split. Financial markets have already priced in a slightly less than 50 per cent chance of a rate cut by mid-2020.

Impact on equipment finance

Realistically, little has changed. The RBA hasn’t seen fit to intervene in the economy and investors can still find good value. The exchange rate is more favourable for exporters, house prices are correcting (not crashing) and the consensus is that present conditions will more or less hold steady for the next 6–12 months.

Impact on you and your business

 

The business outlook remains similarly unchanged. Now is a good time to look for modest growth, secure finance at attractive rates and concentrate on building solid foundations.