The Reserve Bank of Australia (RBA) Board met on 6 June to make its monthly interest rates decision less than a week after the Australian Bureau of Statistics (ABS) revealed inflation had risen in April. Expectations of the decision were split in the markets as the spike in inflation came as a surprise. The RBA decided to lift the cash rate by a further 0.25% to 4.1%. This is the highest in 11 years.
The Board said that the June rise was to provide ‘greater confidence’ that there would be a return of inflation to the target levels within a reasonable amount of time. In a speech the following day, Dr Lowe elaborated on some of the factors behind the Board’s latest rate decision and what they will be keeping an eye on ahead. The key message of that speech was that the narrow path to achieving objectives could be bumpy for the economy.
Despite the peak of inflation behind us, RBA Governor Philip Lowe warned it could take some years and with slower economic growth for inflation to get back to the 2-3% range. Why is this a problem? Dr Lowe explained how prolonged high inflation can cause damage to the economy with all Australians feeling the effects.
While all the talk is very economic and technical, the bottom line for new car buyers requiring finance is likely to be - what will it mean for my car loan? Specifically, what are the prospects and paths for securing an affordable loan? One red flag could be the need for buyers to set themselves up well to ride out the possible bumps ahead that Dr Lowe refers to. That means an affordable repayment schedule based on the cheapest interest rate finance.
Jade Car Loans covers the latest RBA interest rate decisions and outlines how buyers may look to achieve affordable car loans in the current economic scenario.
Reserve Bank June Decision
Dr Lowe announced the June rate decision in a statement posted to the RBA website.
The key points include:-
- It will take some time for inflation to fall to the 2-3% target.
- June rate increase to provide more confidence of inflation returning to target within a ‘reasonable’ period.
- High inflation causes damage including erosion of savings; hurt to budgets; difficulties for business planning and investment; and worsens inequality of incomes.
- The Board responded to indications from recent inflation outlook data that the ‘upside risks’ have increased. Goods inflation slowing, services price inflation remains very high and persistent, and unit costs of labour rising but productivity is still subdued.
- Easing in labour market conditions, but still tight.
- Pick up in wage growth in response to high rate of inflation and tight labour conditions. Productivity needs to pick up.
- The board is alert to the risks presented by wages and price increases and will continue to watch both closely – i.e. price set by businesses and wage increases.
- Uncertainty around household consumption and the global economy.
In closing, Dr Lowe said that some further rate rises may be required. The minutes of the June meeting will be released on 20 June and the Board next meets to make its next rate decision on 4 July.
Dr Lowe – Additional Remarks
While the release of the minutes of each RBA Board meeting revealed insights into the decision-making, more information was available the day after the Board meeting. Governor Lowe delivered an address to the Morgan Stanley Summit in Sydney on 7 June.
The topic of the address was the narrow path that the RBA Board was seeking to get through and Dr Lowe discussed the ‘importance of the destination’ – the inflation target.
Key points of note:-
- Highest inflation in 30 years.
- The tool to control inflation that the RBA has is interest rates.
- Dr. Lowe acknowledged that using interest rates as a tool came with complications.
- Evidence indicates high rates are have an effect and inflation is falling.
- Despite the April spike, the assessment remains that inflation is trending down – underlying inflation has dropped.
- The board discussed stress on household finance of high rates and high rents and the costs involved when inflation stays high for too long.
- The Board will be closing watching: the global economy; household spending; growth in unit costs of labour (wages in line with productivity); and inflation expectation.
- The importance of expectations is that if people expect high rates will stay high, businesses amend prices accordingly and workers want pay rises to compensate. And this all fuels continuing high inflation.
- There is a narrow path to success and it could be bumpy
- Despite the peak of inflation, Lowe warned it could take some years and slower economic growth for inflation to get back to the 2-3% range.
Sourcing Affordable Car Loan Interest Rates
Faced with another interest rate rise and the potential for more in the future, here are a few tips for sourcing affordable car loans:
RBA decisions have flow-on effects across the lending market, including motor vehicle finance. However, the timing and magnitude of car loan interest rate increases can vary among lenders. By utilizing our broker services, you can benefit from faster and more extensive coverage of the market, enabling you to find the cheapest rates and the best loan options to suit your buyer's requirements. We specialize in Secured Car Finance, ensuring a sustainable outcome over the years of the car loan term.
To achieve a more manageable monthly repayment amount, it is important to focus closely on the terms of the loan, including options like Tesla car financing. Consider speaking with us about securing a longer term for your car loan, which can help reduce the repayments to a more workable amount. Additionally, it's important to remember that with a Secured Car Loan, you always have the option to make extra payments over the loan term.
Another strategy to reduce the loan amount required is to consider paying a deposit, or a larger deposit if funds are available. This can significantly lower the amount you need to borrow.
Our Commercial Vehicle Finance Calculator can assist you in deciding how you would like your loan structured, so you'll be ready to brief our consultants on your preferences. It's also recommended to apply for finance before finalizing your decision on the car. Knowing the approved rate and repayments can help you narrow down your options and focus on cars within your desired price range. At our company, we offer CBA Car Loans and Motor Vehicle Finance, ensuring a comprehensive range of options to meet your needs.
Contact Jade Car Loans at 1300 000 003 to discuss how we may assist you in achieving an affordable car loan with cheaper interest rates.
DISCLAIMER: REGARDING 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.
