Low rates not tempting businesses to spend

5.Low rates not tempting businesses to spend

Sydney
(Australian Associated Press)

Despite record low interest rates, more than a third of Australian companies won’t take advantage to invest and grow their business.

In a survey of 115 corporate leaders by investment manager BNP Paribas, 32 per cent said low rates would not prompt them to borrow more, while another 38 per cent were undecided.

Borrowing costs alone are not enough to drive investment decisions, BNP Paribas Australia’s managing director of financial institutions coverage John Keith said.

For many businesses, it’s pointless to borrow money simply because it’s cheap – the right opportunity must also be there, he said.

“They need to find the right projects with the right growth profile and the right payoff in order to actually leverage underlying equity to generate a higher return,” Mr Keith said.

The Reserve Bank cut the cash rate to an historic low of 2.25 per cent in February, and then cut again in May to two per cent.

RBA governor Glenn Stevens has previously highlighted a lack of “animal spirits” in the business community, or a willingness to take risks and invest, which is needed to drive a pickup in economic growth.

Mr Keith said a sluggish economy was playing a part in business caution.

The central bank last week cut its growth forecast range for the 2016/17 financial year to between 2.5 and 3.5 per cent.

“That in itself implies that at least at a macro level you have a slightly more subdued growth rate than was first forecast,” Mr Keith said.

“You invest where you see growth.”

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