Buyers having had to delay car purchases due to supply may get insights into future interest rates from RBA meeting minutes to assist with planning car finance. The supply situation in the motor vehicle sector has meant many buyers have been unable to secure their stock until next year. The announcements of cash rate decisions by the RBA provide a level of information behind each decision. But for those wondering what the RBA Board is really thinking and what could lay ahead, reading the minutes of the RBA Board’s monthly meetings can be quite illuminating.
The minutes of each RBA Board meeting are released a few weeks after each meeting. With so much commentary around rates at the moment, it may be worthwhile for those planning car purchases with motor vehicle finance to stay across as much detail as possible.
We provide an overview of the key points in the minutes of the December 2022 Board meeting. The entire document is accessible at the RBA website for those interested in further detail.
Discussion on Economic Developments
The members of the RBA Board discussed developments in both the global and the Australian economy. Observations included:-
- Inflation globally remained high but appeared to have reached a peak in some countries.
- China continued to have challenges especially in regard to containing COVID-19.
- The global data considered pointed to the normalisation of supply chains moderating inflation and inventories getting back to more normal levels as delivery timeframes from suppliers shortened.
- Data on the Australian economy was in line with the Board’s assessment made at its meeting in November.
- October CPI data showing inflation remaining high though there was a slight decline in the annual inflation rate. The members of the Board noted that the monthly figures for the December quarter were ‘still new’ and should be considered with a level of caution. Some of the contributing factors only becoming evident on the last month of the December quarter.
Decision-Making: 0, 25 or 50 Basis Points?
Possibly the most interesting take-out from the December Board Meeting Minutes is the discussion by the members around whether to announce a 0.5%, 0.25% or 0% rate rise at the meeting. The minutes outline the arguments discussed by board members for each option.
In regard to a 0.5% rise the arguments included:-
- Inflation rate remaining high.
- Continuing high levels of demand with lower supply.
- Cash rate not at historically high level as yet and if more restrictive action was ultimately required, time would be required for this to lessen demand.
In regard to a 0.25% rise the argument included:-
- As with the arguments for the 0.5% rise, these included recognition of the need to better balance supply and demand.
- Acknowledgment of the already significant interest rate increases and how time would be required to see the full impacts of these.
- Discussion around mortgage payments and when the rate rises would start to impact those currently on fixed rate home loans.
- Easing off in demand and resolving supply chain issues could be expected to ease risk of price wage spiral.
In regard to a 0.0% rise the argument included:-
These arguments are likely to attract most interest. In recent remarks, Governor of the RBA, Dr Philip Lowe said that the Board had not ruled out returning to the large 0.5% increases nor ruled out leaving rates steady.
The arguments discussed by Board members in regard to leaving the cash rate unchanged for December included:-
- The lag effects of the rate rises made so far.
- The value of continuing cautiously with the uncertainties in the current environment.
- Forecasts most recently indicated that it would still take a number of years for inflation to reach the RBA’s target even with further rate rises.
- Central banks in other countries had not paused their rate rises.
The minutes record the Board members acknowledging the arguments for each of the options. However, the case for a 0.25% rate rise was considered the strongest and that was the decision taken at the December meeting.
In making this decision, the minutes record that the Board note the importance of consistency and that changing to larger rises or pausing rates at the moment while there was not ‘clear impetus’ from data, could lead to uncertainty. The minutes record that the Board would be considering a range of rate options, including those related to low doc car loan, at its next meeting.
It was also noted that a return to larger rate rises was not ruled out if the circumstances warranted such action nor was the option of keeping rates unchanged ruled out.
Car Finance Considerations
For those planning new vehicle purchases with car loans for business in the coming months, it may be encouraging to hear that at the least the prospect of rates being unchanged is on the table. The next meeting of the RBA Board regarding rate rises is scheduled for early February but lenders do make their own decisions re changes to their car loan interest rates. Banks and non-bank lenders may make decisions based on forecasts from their own analysts.
While the RBA Board meeting minutes provide interesting insights, it does still look like we will see further rate rises in 2023. We assist those seeking finance to source the cheapest rates available at the time as variations do exist in rates across the business car financing rates market.
Contact Jade Car Loans at 1300 000 003 to source the cheapest motor vehicle finance interest rates.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.