Rising Interest Rates, What Are the Effects?

News of the rising cost of living is inescapable at the moment, with particular media focus on the Reserve Bank of Australia (RBA) lifting the official cash rate for the fifth consecutive month, recently. For business owners looking to access business finance, there is a natural concern about the effects of rising interest rates.

We take you through the effects of a rising interest rate market and how accessing commercial lending specialists can help steer your business forward through rising-rate environments. 

Why has the Reserve Bank lifted interest rates?

Gone are the days we were hitting record low rates back in 2020 — with high inflation, the interest rates are being hastily increased.

The interest rate hikes we’ve experienced this year have been unprecedented, but so too have the disruptions to our way of life. Businesses, in particular, have felt the impacts of the significant supply chain disruptions recently. Lifts to the cash rate target (the rate lenders use to determine what interest rate to charge) are the Reserve Bank’s way of trying to create a more sustainable balance of both supply and demand in Australia’s economy. The other main objective of raising rates is to bring inflation back to target (2-3 per cent) — put simply, rising interest rates mean people have less money to spend on consumables. Less spending means prices go down.

The RBA is responsible for conducting monetary policy in Australia, with the objectives of managing price, economic prosperity, full employment and overall welfare of Australia’s population.

What impact does the cash rate target have on businesses?

When the RBA decides to raise rates, there are a number of flow-on effects to Aussie businesses. A rate rise is more than just an insider decision after the board’s assessment of the monetary conditions. The cash rate acts as a form of benchmark for many things, from savings accounts to mortgages and even our exchange rates.

Naturally, when there are shifts to variable mortgage rates and investment rates, the Australian economy is impacted as it changes the way that people spend and invest. It also affects the labour market and employment, which, for Aussie small businesses, can be a great opportunity to grow their staffing levels.

For Australian households, higher rates often mean higher monthly repayments on their home loans (or any loan with variable rates). Businesses that utilise business loans may feel the same impact, depending on the loan type. Variable rate loans are subject to change with the shifts in the cash rate at the discretion of the lender. Those with fixed rates on their finance will be able to avoid any changes to their loan repayments for a fixed period, however, they may feel rising costs elsewhere in their business.

How to manage rising interest rates with darkhorsefinancial.com.au

At darkhorsefinancial.com.au, we’re not just commercial finance specialists; we are business specialists with a deep understanding of what it takes to build a successful organisation. We can help your business source the most affordable and best-suited lending solution in the midst of an interest rate rise.

We’re here to ensure that your business accesses a commercial finance solution that fits your unique business requirements today and can help you navigate future interest rate increases.

Reach out to our professional team today to learn more.