The credit squeeze is here
Thursday, April 26, 2007/
Don’t worry about interest rates rising next week. The Reserve Bank has already begun putting the squeeze on excessive borrowers.
The Reserve Bank will have no need to raise interest rates next week, and it is not just because of last Tuesday’s lower-than-expected CPI outcome. It has already begun targeting sections of the economy to wind back what has been excessive use of credit.
The bank’s message that Australians should try to reduce spending on credit is not cutting through, and the bank cannot afford to hit too many households with an interest rate rise. Hence the targeted approach.
Get ready: bank managers are beginning an old-fashioned line of credit squeeze on small business finances where there is no short-term export return.
Bricklayers, electricians, tilers and plumbers are but a small section of the small business operators who are being targeted by the RBA. It is an attempt to force skilled labour into mining and infrastructure projects and away from the housing boom.
It will be a boon for insolvency practitioners and financial planners helping those who have been placed on a fault line by the 10-year boom that is reaching its peak, Customers are already taking into account the long-term impact of the GST and the freeze on their earlier cost of living adjustment expectations.
The squeeze being introduced by bank managers and debt collectors is already being felt by those on less than the median wage or on fixed incomes.
Those at the mercy of the rising dollar will also be affected. Exporters who have locked in US-dollar payments, as in the grains industry, or are selling major plant and equipment or vehicles manufactured in Australia are going to start laying off staff who will find it harder to get new jobs at their old wage levels.
Small-business owners will find that exports will become rapidly more difficult and that their bank managers are building a subtle but effective credit squeeze on future non-commercial loans with higher interest payments. Small and medium enterprises will need to undertake careful strategic review to lower their internal costs and strengthen their competitive advantage.
Oh! And watch with rising interest the shift of credits from the US dollars to euros and the Australian dollar as the big end of town speculates on a June or July interest rate rise.