Interest Rates

The hot topic that continues to be at the forefront of most people’s mind is the Interest Rate. At the time of writing this, the current cash rate is 1.35%.

What’s important to remember about the Cash Rate is that it is the key tool used for Monetary Policy – Monetary Policy involves influencing interest rates to affect aggregate demand, employment & inflation in the economy. Monetary Policy has 3 key objectives;

  1. The Stability of the Australian Currency – Meaning low & slow inflation in the value of the Australian currency in order to preserve the value, or purchasing power of money over time. What’s key to this is that the RBA has an inflationary target band which means, they want to keep inflation between 2% – 3% on average over time. In Q1 2022, the inflation figure surged to 5.10%, from 3.50% in Q4 2021. This also surpassed expectations of 4.60%.
  2. The maintenance of ‘Full Employment” in Australia – Meaning there are enough jobs for people who are available to work. As at the June RBA board meeting, unemployment was at its lowest level in nearly 50 years at 3.90%
  3. The economic prosperity & welfare of the people of Australia – Meaning promoting an environment that supports the economic prosperity & welfare of the Australian people.

What does this all mean? As long as there is Inflation outside of the 2%-3% band & low unemployment numbers, the Cash Rate is predicted to continue to rise. Most are predicting the Cash Rate to peak in mid/late 2023 between 2.20% – 2.50%. These predictions are changing almost on a weekly basis!

What can you do? MAKE YOUR PLANS NOW. Engage with the Gild Finance team to ensure you have the right structures & buffers in place to cope with these rate rises. It will only get more difficult as the year goes on to acquire finance (especially working capital solutions).