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Economic Update with Harley Dale

Reading Time: 2 minutes

A lack of summer sizzle keeps the RBA firmly on hold

“It comes as no surprise that the RBA Board has made the decision to keep the OCR steady at its record low – a rate that has remained unchanged since November 2020. Conjecture regarding a rate rise will intensify as we move throughout the year but right now, nothing is going to happen to official interest rates.

“Not before a federal election, not when the devastation of the Omicron variant has prompted state governments to provide billions of dollars in support packages for Australian businesses and not whilst real wages are going backwards. There is simply too much weight against a short-term rate hike from the RBA, regardless of what residential housing property prices are doing.

“The RBA recognises that a rise in market interest rates will fulfil the opening stanza of a tightening credit environment for SME’s and that’s an important element of Australia’s emerging economic recovery that SME’s need to be cognisant of. CreditorWatch data highlights a number of industries facing credit and financial stress in early 2022 simply because they didn’t receive the summer sizzle they expected or deserved. Front line industries at risk early this year include Accommodation and Food Services together with Arts and Recreation Services – both of which are heavy lifting employers.

“The first half of 2022 may well be full of considerable noise around when we receive a first official rate hike, but it won’t happen within that timeframe. The second half of this year may turn out to be a different story but in the meantime, market interest costs will rise and SME’s need to prepare for that. The RBA can stay put for a considerable time and communicating that stance to SMEs in a transparent manner would be very helpful to Australia’s economic prospects. Australia has already endured two sets of recessionary conditions. The RBA moving too soon will create a third.”

Harley Dale

CreditorWatch Chief Economist