Rates raise business concern

The ninth increase to interest rates since May last year raises concern about the impact on small business and the wider economy.

“We have already seen evidence in recent months of a slowdown in economic activity, so there is concern about the impact of higher interest rates on business and beyond,” ACCI chief executive Andrew McKellar said.

The Reserve Bank of Australia today raised the cash rate by 25 basis points, bringing it to 3.35 per cent.

“While attention is focused on the pinch of higher mortgage payment on households, businesses are also suffering the cost of rising interest rates through loans on their buildings, capital assets such as machinery, and to cover the ongoing costs of their operations,” Mr McKellar said.

“Recent ABS data shows that lending for new homes has plummeted, down 62.4 per cent since it peaked in January 2021.”

The higher interest rates will further dampen business investment in at a time when it has flatlined over the past year.

“The latest ACCI-Westpac Survey of Industrial Trends showed that the general business situation had deteriorated dramatically in December and that manufacturers investment intentions were weakening, although remaining positive. The impact of interest rate rises come on top of energy costs, record labour shortages and supply chain challenges are driving this decline,” Mr McKellar said.

“There will be concern over coming months as we await the impact on households that transition from record-low fixed rates to higher repayments, and its impact on consumer spending power.

“There is a lag, but it’s clear previous interest rate rises implemented by the Reserve Bank have had an impact on the economy.

“The consumer price index figure for the December quarter was higher than anticipated. While it is not clear that it has peaked, there is evidence inflationary pressure should ease over coming months.

“The key message here for business is not to over-react. Let this play through and take time to see what’s happening.”

In the upcoming budget it is essential the government introduce targeted measures to reduce impact of the rate rises on business and ease the cost of doing business.

“It is important that monetary and fiscal policy are aligned. In the upcoming Budget it is essential the government show spending constraint, with any new spending measures targeted at productivity and growing the economy,” Mr McKellar said.