The Reserve Bank of Australia’s decision to keep interest rates on hold was met with despair in some sections of the business community. However, SMEs have other ways of sparking new growth, and this may actually be what the nation’s central bankers have in mind.
The RBA’s November announcement came as a shock to those who had hoped for a gesture towards boosting the economy, in the shape of a rate cut to 0.5%. In theory, that would encourage firms and consumers to spend money while making Australian goods and services more desirable abroad by weakening the dollar.
Business owners, however, should not be placing their hopes on such small measures. They are more than capable of improving their own financial outlook, and business owners are motivated to invest in their enterprises whether their savings could be earning 0.75% or 0.5%.
Indeed, this is arguably what the RBA is hinting at by resisting calls to administer economic first aid.
The Dollar Works Both Ways
Although it makes Australian products more expensive to foreign buyers, the support which the RBA’s firm stance has dealt to the Australian dollar will be advantageous to many SMEs in areas such as wholesale, manufacturing and Mining Services. These small and medium-sized businesses are often reliant on imports, and a small shift in currency in their favour can offer a significant boost to their finances.
If buying supplies from abroad were to become cheaper as a result of monetary policy, even more small firms could start to enjoy the advantages of overseas supply chains thanks to innovative Trade Finance.
Trade finance is just one of the so-called alternative lending methods that have emerged or grown substantially in the decade since the financial crisis, rendering interest rate decisions less critical to businesses. This is because fewer firms are now solely reliant on business loans and business overdrafts for their funding needs.
Trade finance itself is not new, but like Invoice Finance it is enjoying good growth as makes it very easy and convenient for businesses to use and is also very cost effective.
Rate Decision Signals Confidence
Apart from the double-edged effect of any dollar movements it may induce, holding rates can also have a positive effect on the economy because it signals confidence.
Calls to administer help to a slowing economy have become commonplace, but the problem is that once a central bank is seen to be accommodating these demands, the expectation becomes self-perpetuating: Businesses that expect money to be even cheaper in another month may not go out and spend as liberally as had been hoped.
It is also worth remembering that we are only talking about quarter percentage points. The negative feelings generated by signalling that the economy is in need of support could easily offset any boost that such a tweak can give.
On the flip side, by signalling its confidence that Australian businesses are able to make progress on their own, the RBA should give entrepreneurs and consumers a solid reason to press on with their spending plans. For businesses, these can be funded in a number of very smart ways that will not tie the owner into a long repayment schedule based on today’s interest rates.
For information about smart flexible business funding options such as trade finance, invoice finance and supply chain finance, check out our website or call OptiPay today.