There is a particular kind of quiet in the market right now, and if you run a business or manage a balance sheet, you have probably felt it. Rates are not moving. Costs are still creeping. And most owners we speak with are holding their nerve rather than making big moves. That caution is sensible, but it can become expensive if it hardens into permanent hesitation. This week we unpack what is happening across rates, inflation, lending and policy, and translate it into the decisions that genuinely matter over the coming months.
The cash rate is going nowhere in a hurry
The most important number for anyone carrying debt is still the cash rate, and it remains at 4.35%. When the Board next meets on 11 August, the weight of evidence points to another hold. The labour market is the reason. Unemployment sat at 4.5% in April and 4.4% in May, and if June comes in around 4.4% the quarterly average lands above the Reserve Bank’s own May forecast of 4.2%. In plain terms, the jobs market is loosening a little faster than the central bank expected. That is not a signal for further hikes, and it takes some of the heat out of the tightening talk that dominated earlier in the year.
For business owners, the practical read is that borrowing costs have most likely found their ceiling for this cycle, even if the first cut is not imminent. That matters for how you think about fixed versus variable exposure. Locking in an entire facility at the top of a rate cycle rarely pays off, but there is a reasonable case for fixing a portion of your debt if certainty of repayments helps you plan, while leaving the rest variable to benefit if and when cuts arrive. This is exactly the kind of split we help clients calibrate to their own cash flow rather than to a headline.
Inflation is behaving, but not beaten
The reason the Reserve Bank is not rushing to cut is that inflation has not fully returned to target. The trimmed mean measure is running at around 3.5% a year, still above the 2 to 3% band the Board is aiming for. There is encouraging news underneath that figure. Consumer inflation expectations dropped to 4.7% in July from 5.5% in June, the lowest reading since January, as petrol prices unwound the spike caused by Middle East tensions. Expectations that stay anchored make the Board’s job easier, but at 4.7% they are still well above where anyone would like them, sitting more than a full percentage point above the current trimmed mean.
The takeaway for a CFO is that input cost pressure has not disappeared, it has simply stopped accelerating. If you have been absorbing higher costs rather than passing them on, this is the moment to review margins line by line before the next quarter. Pricing decisions made now, while expectations are easing, tend to stick better than those made in a panic.
Oil is the wildcard nobody controls
Just as fuel prices were settling, the Strait of Hormuz has flared up again. Renewed conflict and a naval blockade pushed Brent crude above US$90 a barrel, a one-month high, after it had drifted back to around US$70 only a fortnight earlier. It is still below the US$120 peak from April, but the direction is the concern. For any business with a transport, logistics, freight or heavy input component, this is a live risk to your cost base and, by extension, your working capital.
We flag this because energy shocks have a habit of arriving faster than businesses can adjust. If a sustained lift in fuel costs would strain your cash flow, it is worth stress testing that scenario now and making sure your working capital facilities have genuine headroom, rather than discovering the gap when an invoice is already overdue.
What SMEs are actually doing with credit
Beyond the macro numbers, the most revealing picture comes from how small and medium businesses are behaving. The mood is defensive. Loan arrears at 30 or more days fell by 43% over the June quarter and by 84% across the full year, taking arrears to a multi-year low. That is an impressive result. Business owners have spent the year attacking existing debt, keeping cash flow ticking over and prioritising suppliers and essentials over expansion.
The application data tells the same story from a different angle. Larger businesses have pulled back sharply, with average loan sizes for those turning over more than $20 million falling 40% across the quarter, and those in the $10 to $20 million band down 33%. Smaller operators moved the other way, with businesses turning over between $500,000 and $2 million lifting their average loan size by 15%, and those in the $2 to $5 million range up 11%. There has also been a notable spike in owners walking away after conditional approval, or switching lenders at the final stage.
We read that last point as the clearest signal in the whole dataset. Businesses are testing the water without committing, which tells us plenty of owners are unsure whether the deal in front of them is actually the right one. That is precisely where a broker earns their keep. Shopping a single approval against the wider market, or restructuring rather than simply borrowing more, is often the difference between a facility that fits and one that quietly drags on your returns for years.
It is also worth remembering that not every funding decision needs to be a large term loan. Where a business genuinely needs to replace a vehicle, upgrade equipment or invest in the tools that keep it productive, asset finance can spread that cost against the life of the asset without tying up the working capital you may need elsewhere. In a defensive year, matching the type of finance to the purpose is at least as important as the rate attached to it. We often find owners have been quietly funding equipment out of cash flow when a purpose-built facility would have left them far better positioned for a lean quarter.
A major policy change lands on 10 August
There is one hard deadline every owner with a self-managed super fund needs on the calendar. From 10 August, new limited recourse borrowing arrangements for residential property inside SMSFs are effectively finished, following changes rushed through alongside adjustments to negative gearing and capital gains tax. The building industry has warned this could bite housing supply, pointing to more than 3,600 signed contracts already tied to SMSF borrowing that may not proceed, with a large share expected to be shelved. Estimates suggest detached housing commencements could fall by between 3.5 and 5%, trimming state stamp duty and GST revenue by more than $450 million.
Whatever your view on the policy, the practical implications are what count. If you have been considering residential property through your SMSF using borrowed funds, that window is closing fast. Crucially though, the door is not shut on everything. SMSF commercial property lending remains available, and this is where a lot of business owners find real value, purchasing the premises their own business operates from through their fund. Refinancing options also remain where existing arrangements are grandfathered. If any of this is relevant to you, the next fortnight is the time to get advice, not the week after the deadline.
Confidence is split, and that creates opportunity
One final observation ties it together. Business confidence has recovered sharply, climbing to well ahead of where it sat during the March slump, while consumer sentiment has gone nowhere, stuck near the bottom 10% of readings in half a century of surveys. That gap is unusual and it will not last forever. Businesses that position themselves while consumers are still cautious often find they have a clear run when household spending eventually returns.
This is really a question of expansion timing. Nobody wants to over-commit into a soft patch, but finance takes time to arrange and the best opportunities rarely wait for perfect conditions. A competitor putting their premises up for sale, a supplier offering favourable terms, or a well-priced piece of equipment coming to market does not follow the economic calendar. The owners who capture those moments are usually the ones who have already done the groundwork and know what their borrowing capacity looks like. Getting pre-approved does not commit you to anything, but it does mean you can act with confidence when the right opportunity appears rather than scrambling for funding after the fact.
Caution has served owners well this year, and the discipline shown in paying down debt is exactly the right foundation. But the businesses that come out of this period strongest are usually the ones that stay ready to move, with clean balance sheets, flexible facilities and a clear sense of what they would do the moment conditions turn.
If you are weighing up whether to fix, refinance, free up working capital, or act before the SMSF changes take effect, we would be glad to talk it over. A short conversation now can save a lot of second-guessing later, and there is no obligation in mapping out your options. Reach out to Matt directly and we will help you find the structure that fits where your business is heading.
This article is general information only and does not take into account your objectives, financial situation or needs. It is not personal financial, tax, credit or legal advice. You should consider seeking advice tailored to your circumstances before acting on anything discussed here.
