Guy Callaghan, CEO of Banjo Loans, comments on the latest RBA interest rate decision
Guy Callaghan (pictured), CEO of Banjo Loans, outlines his views on the most recent RBA interest rate decision.
1. How important was it that the RBA dropped the interest rates yesterday?
The Australian economy is still under pressure, especially for SMEs. It’s been propped up by government spending and low unemployment but despite this, many businesses are still really struggling. The 25-basis point drop to 4.1% won’t resolve all the pain, but it will inject some much-needed confidence into the market. SME owners tend to be quite optimistic, always looking for the positives in their business. This rate cut could well be the starting gun SMEs needed to drive impetus into a faltering economy.
2. What are the pros and cons of the current interest rate levels?
The reality is that the current rate of 4.1% is only a very slight reduction from the previous 4.35%. This drop signals the RBA’s response to slowing inflation and the need to support economic growth. The rate increases to 4.35% were necessary at the time to help combat inflation, but in hindsight, the RBA may have kept rates at that peak for a bit too long.
I think the new 4.1% rate is more in line with providing some relief to businesses without triggering inflationary pressures again.
3. When speaking to your customers, what is the sentiment around the current interest rate levels?
SME business owners are a positive and optimistic group, but with rates so high they’ve been cautious about borrowing due to uncertainty about the future. Yesterday’s announcement that the rates will drop to 4.1% may encourage some to reconsider their positions as they’re still cautious but looking for signs of stability. Pre-the RBAs call yesterday, we’d seen a drop in loan applications and speaking with our customers, a key reason for this was the high interest rates.
4. Following on from yesterday’s rate drop to 4.1%, how will your customers benefit or be impacted?
The RBAs decision to drop the rates to 4.1% yesterday was the right decision and I think it will improve sentiment in the market, which is more significant than the rate itself. SME owners will feel more encouraged to seek additional funding to grow or to restart projects that have been put on hold.
5. Despite the rate cut, the RBA continues to cite Inflation continues to be a key concern for the RBA. What’s your view on inflation and the likelihood of further rate dips?
The latest data released publicly all pointed toward a downward trend in inflation, which helped justify the rate cut to 4.1%. As long as the government refrains from throwing additional money or subsidies into the economy, underlying inflation should continue to fall. Our research into Australian SMEs shows that businesses aren’t raising prices now. If anything, they’re focusing on trimming operating costs to remain competitive and sustainable.
6. Do you think the RBA made the right call yesterday, given current inflation rates?
I think the RBA has made the right move. Given the current economic challenges and the data supporting the decision, it was necessary for the RBA to act and support the economy. However, as always, rate predictions are an inexact science and even experts have been wrong before.
