Is an unchanged cash rate good news for SMEs?

July 11th, 2016

The Reserve Bank of Australia (RBA) decided to keep the official cash rate unchanged for the month of July at 1.75 per cent, as reported in a July 5 media release.

The decision comes on the back of the UK's referendum result where the nation decided to leave the EU. Some commodity holders have re-priced their assets in Australia and this initially looked as if it might have some serious consequences. However, most of the major markets in the country have remained relatively stable, and so the economy hasn't yet seen the drastic effects of the Brexit that many commentators predicted.

But with the cash rate kept at 1.75 per cent for the third consecutive month, what could it mean for SMEs heading forward? It could be affecting the confidence of businesses in Australia while it doesn't look set to move in the near future.

Will SMEs see the effect of the unchanged cash rate at all?

The record low of 1.75 per cent is due to a number of extenuating circumstances outside the RBA's control.

As is usually the case when a cash rate is kept for a number of months, businesses don't tend to feel major effects from the RBA's decision. However, the current figure is a record low, and this is due to a number of extenuating circumstances outside the control of the RBA.

One of the most significant of these is the strength of the global financial world, which includes a moderating Chinese market. For a while, it looked as though the eastern continent would dominate the trading markets even more, but that hasn't eventuated. This is great news for Australian businesses that trade with countries all over the globe, but also keeps the export prices high for goods going into China.

While exporters are going to be happy with the Chinese moderation, smaller businesses that deal solely with national clients won't see the same changes. To keep pace with the growing strength of competitors, enhancing cash flow for growth with invoice finance might be the best, and only, option.

How is the cash rate affecting business confidence?

According to the Dun and Bradstreet Business Expectations Index from July 5, Australian SMEs are feeling the pinch, with the index showing the lowest figure since 2014.

In Q2 of this year, the index was at 12.7 point, but has now fallen to 12.3. At the same time last year, the number was much higher at 17.6 points.

What does the latest cash rate decision from the RBA mean for SMEs?What does the latest cash rate decision from the RBA mean for SMEs?

That fall in confidence isn't all to do with the cash rate, however. People are still potentially afraid of what the Brexit could do as it ripples around the world, and until the Sterling stabilises, it could be tough to tell for sure.

To keep your own confidence high, make sure you have enough working capital in your stores - get in touch with Earlypay to make sure of that.

If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].