After much speculation and expectation, the Board of the Reserve Bank of Australia (RBA) announced an interest rate rise at its 3 May meeting. This rate rise in the official cash rate while not unexpected, was notable for a number of reasons: it came in the middle of a Federal Election campaign, it was the first cash rate rise for nearly 12 years and it was surrounded with discussion about whether or not the RBA had left the move too late to address the surge in inflation.
Many analysts and economists had been calling for a rise since mid to late 2021 to curb the over-heated housing market. But it was Australia’s better than expected recovery from the economic effects of the pandemic and the resultant surge in inflation which appears to be the deciding factor for the decision.
The rise itself was not unexpected but the amount, 0.25%, did surprise many. That increases the cash rate from 0.1% to 0.35%. There seemed to be a general opinion that the rise would be in the vicinity of 0.15% and several other smaller rises follow.
The question now is where to from here? Will there be further rises in coming months? The rationale of the interest rate rise by the RBA and indication of future intentions is covered in the statement announcing the Board decision.
To assist those considering motor vehicle finance assess how the interest rate decision may impact their loans and buying decisions, we summarise the RBA May Board Meeting statement.
RBA Board May 2022 Statement: Key Points
The RBA Governor Philip Lowe issued the monthly statement which follows each Board meeting and included the reasoning around decisions made at that meeting and the Board’s outlook moving forward.
The key points in this statement include:-
- Board judges that this is the appropriate time to start withdrawing some of the monetary support (ie, low interest rates) which was intended to support the economy through the pandemic crisis.
- Resilience of the economy has seen a faster pick-up in inflation than expected.
- Along with wages growth starting to pick up, the time is seen as right to commence normalising monetary conditions. (To explain, the historic low rates were seen as support measures and the increase is returning rates to more normal levels.)
- Unemployment declining to current 4% and expected to further drop to 3.5% by the early part of 2023 and then stay around that level. The Board notes this unemployment rate as the lowest in nearly 50 years.
- Economic growth outlook is positive although uncertainty exists around global impacts.
- The Board notes uncertainties in regard to COVID-19 in particularly in China; Ukraine war; higher inflation globally reducing consumer buying power.
- In the accompanying speech, Dr Lowe also noted the domestic issues around rising inflation. These include areas of strong demand place pressure on capacity. Businesses having issues sourcing workers which in turn places pressure the business performance and firms then passing on cost increases to consumers.
- Pick-up in inflation significant and greater than expectations, though lower than many advanced economies.
- Rise in inflation seen largely as reflecting global issues.
- Further inflation rise expected but then decline as supply issues resolve.
- 2022 inflation central forecast 6%, underlying inflation 4.75%. Mid-2024 – underlying 3%
- A point to note especially is the Board stating that its forecasts for inflation are based on assuming there will be further interest rate increases.
- Evidence indicating wage growth through wage increases is happening in private sector.
In closing, the RBA Board said it was committed to doing what is required to see inflation return to the target level. In order to achieve this, the statements says further increases in interest rates will be required in the time ahead.
Car Loan Interest Rate Impacts
As we have mentioned in many of our news blogs in regard to the general interest rate talk, much of the reporting does focus on the home loan market. Being this is the largest lending market, having variable rate loans and any rises will impact many people.
But the rise in the cash rate will flow through to all lending markets. The major banks including a number of our lenders, CBA, ANZ and NAB reacted to the RBA decision by increasing their rates in some sectors and non-bank lenders will follow. This will include business motor vehicle finance rates.
A key issue to point out is that Jade Car Loans as a broker-style lender will remain ideally placed to secured better interest car loan interest rates due to our accreditations with multiple lenders.
A major take-out from the RBA Board statement is the reference to further rises in interest rates. For those considering purchasing vehicles with finance, the advice would be to act sooner rather than delay. The RBA Board next meets to discuss rates on the first Tuesday in June.
Contact Jade Car Loans on 1300 000 003 for a quote on motor vehicle finance.
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.