Bank, non-bank react to July decision
The Reserve Bank of Australia has delivered its verdict on the official cash rate, announcing no change to the current level of 4.10% on Tuesday afternoon.
The interest rate on exchange settlement balances has also remained the same at 4%.
In a decision that has defied some bank economists’ forecasts, the July decision marks the second pause for 2023.
Ahead of the decision, Westpac senior economist Pat Bustamante, NAB chief economist Alan Oster and ANZ senior economist Adelaide Timbrell told MPA that they had forecast a 0.25% rise in July.
But not all agreed, AMP senior economist Shane Oliver saying that the monthly CPI indicator of 5.6% in the year to May provided scope for the RBA to pause instead, although he later revised his view, believing an increase was more likely than not.
UBS Australia chief economist George Tharenou, who has correctly predicted every RBA decision since July 2022, had also forecast the Reserve Bank would pause this week.
Announcing the July monetary policy statement on Tuesday afternoon, RBA governor Philip Lowe indicated the central bank had weighed up the four percentage points of rate rises to date, which he said were working to establish “a more sustainable balance” between supply and demand.
“Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline. But inflation is still too high and will remain so for some time yet,” Lowe said.
The board still expected the economy to grow as inflation moves back towards the target range of 2% to 3%.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” he said.
Medina Cicak (pictured above right) head of lending, product and operations at RACQ Bank, said that the RBA’s decision to hold interest rates would no doubt be welcome news to many borrowers.
The one-month reprieve would give borrowers time to ensure they have a clear understanding of their current repayments and have budgeted correctly and look at what impact a further rate rise would have on their finances, she said.
“We encourage our members to reach out to us early if they have any questions about their repayments, and what support options are available,” Cicak said.
As a member-owned bank, RACQ Bank supports members by reviewing their lending regularly and allowing them to switch products without cost during the life of their loan, she said.
“Our members are encouraged to reach out to us early if they have any concerns about their financial situation,” Cicak said.
Matthew Porch (pictured above left), head of distribution at private lender Aquamore, said that official cash rate rises represented higher borrowing costs which lenders could not afford to absorb.
He noted that markets were split on when rate rises would stop, NAB and Westpac among the major banks having forecast the official cash rate to peak at 4.60%.
While the official cash rate had not increased this month, Porch cautioned that the situation remained “fluid” and said that borrowers with large exposures must still be prepared to manage uncertainty for the foreseeable future.
As a non-bank lender providing loans to small and medium-sized businesses, Aquamore was seeing resilience among businesses, which Porch said was demonstrated in its continued low arrears levels.
“Inflation is starting to fall slightly, so the increase in rates is beginning to work, but the days of cheap money are very much over. This means that managing cash flow correctly is more important than ever,” Porch said.
Opportunities for commercial brokers
Commenting on the commercial finance market more broadly, Porch said that brokers were actively embracing diversification. Experienced commercial brokers continue to experience high volumes as businesses increasingly seek commercial finance solutions to help them to manage cash flow issues, he said.
“In addition, we expect the unsecured cash flow lending space to present some unique opportunities,” Porch said.
