Cash rate stability represents an opportunity to lock in cheap borrowing costs
(8 September 2017 – Australia) The Reserve Bank Board left cash rates unchanged at a record low of 1.50 percent for the thirteenth consecutive month this week, citing growth in the Chinese economy, a recovery in commodity prices globally, improvements in employment growth and stronger retail sales as potential drivers of a gradual pick-up in the Australian economy over the coming year.
However, the central bank noted low wage growth, high levels of household debt and a higher exchange rate weighing on upward price pressure and economic activity going forward.
Markets are forecasting rate normalisation to proceed slowly, with the interbank rate expected to remain flat through 2017, pricing in a single rate rise to 1.75 percent over the next 12 months.
Subsidising expectations of further monetary easing in Australia and major global economies in combination with low implied market volatility may represent an opportunity for businesses to lock in favourable borrowing rates over the longer term before yield curves steepen.
Fixed income hedging can provide businesses budgetary certainty on interest expenses against core future debt requirements and allow them to attain more favourable credit terms.
East & Partners identifies this gap in awareness of underling driving factors behind fixed income hedging intentions as a fertile area for the generation of research based insights. A clear understanding of the specific deterrents for greater uptake in certain industries or turnover threshold segments is vitally important to better understand the driving factors for CFOs and corporate treasurers intentions. Key barriers include inexperience among key decision makers, treasury policy restrictions or perceived upfront costs as key contributors.