Short-term is short sighted


Short-term is short sighted

High inflation and rising interest rates may be dominating economic news headlines at the moment but they shouldn’t dominate your thinking when choosing the best way to finance a large-scale project.

Inflation and interest rates do both undoubtedly have an impact on both the cost of borrowing and the cost of completing your project. We do live in times that are much more focused on the “short-term shock” rather than planning for “long-term resilience” so it can be a pitfall to be too focused on the short-term, attention-grabbing headline numbers.

Let’s put current trends into a longer-term context.

Interest rates around the globe have remained at historic lows since 2007. This has been a direct result of the policies of central banks to keep the cost of borrowing money low to stimulate economic activity.

In 2022 central banks are facing very different circumstances to those of the global financial shocks of 2007. Now they are increasing their official cash rates to take some heat out of their domestic economies to get inflation under control.

The reasons for inflation getting out of control may be worthy of debate. One theory may be that domestic governance have been stimulating their economies for too long and should have adjusted interest rates sooner. We will leave that discussion to the economists and stay focused on how you can inflation-proof and interest-rate proof your project.

If we look at the trend from many central banks around the world, the only ones with an official interest rate currently trending downwards are Turkey, Russia, Japan, Indonesia and China.

All the rest, including America, Australia, Europe, India, South Africa, are currently on their way up. However, to suggest that an adjustment from an official rate near zero to the Reserve Bank of Australia’s current 1.85 per cent is hardly worthy of the “rate hike” label.

The ultimate goal for any project manager must be to keep costs low. Clearly high inflation and rising interest rates work against that goal. That is why current trends make it prudent to find a way to finance your project that makes it as resilient as possible to short-term blows.

The simplest way to achieve your goal is to focus on the longer-term. Resist accepting short-term finance. Consider, instead, the fundamental strengths of your project and focus on what is necessary to deliver it to a high standard of completion so it attracts the best possible return from the end purchasers or users.

Global investors are currently looking for returns that will better inflation. If you’ve focused on the fundamentals you will be able to attract world-class sources of finance who are prepared to back you to deliver to a standard of excellence in a reasonable timeframe.

Acuity Funding has long-term, excellent relationships with those global investors. If you have a project which is fundamentally sound, we can facilitate the finance you need, without short-term pressures and without the need for government guarantees. For more information call +61 2 9484 0609