At the June Board meeting of the Reserve Bank of Australia (RBA) the decision was made to lift the official cash rate by 50 basis points, 0.5%. The official cash rate now sits at 0.85%. The RBA decision has significance across many sectors with those considering motor vehicle finance particularly interested in how it will affect a car loan.
In general terms, the decision is significant in regard to the amount of 0.5% as the RBA has only raised rates by that amount a few times in recent decades. The decision also came as somewhat of a surprise to many banks and economists with the sector expecting possibly a 0.25% or 0.4% increase.
The rise is in the cash rate is primarily to address surging inflation which has grown to 5.1% over the 12 month period to March 2022. In the statement making the rate announcement, the RBA conceding that inflation is higher than its own forecasts had expected.
A rise in the cash rate by the RBA does have a flow-on effect through lending markets with Westpac the first of the Big 4 banks to pass on the rate rise to housing loan customers. The other three followed closely. The rise will flow through to motor vehicle finance but Jade Car Loans reaffirms our commitment to achieving better rates for our customers. An outcome which becomes even more important in a rising rate and rising costs of living environment.
Governor Lowe Statement
The statement which announced the June 2022 rate rise includes key points:-
- Inflation in Australia is lower than it is in many other advanced economies but still above earlier expectations.
- Much of the rise in inflation is due to the global factors of pandemic-related supply chain disruptions and Ukraine war.
- Domestic issues including the labour market and the recent floods are impacted prices.
- Gas and electricity prices and recent rises in the price of petrol mean that inflation in the ‘near term’ is likely to be greater than the RBA expected in the previous month.
- It is now expected that inflation will rise further before declining to a 2-3% range in 2023.
- The rate rise will assist in returning inflation to the target rates over time.
- It is expected that Inflation will moderate as supply issues on a global basis resolve.
- Australian economy has grown by 0.8% (March quarter figures) 3.3% over the year, showing resilience.
- Strong labour market with lowest unemployment level, 3.9%, in nearly 50 years.
- As businesses compete to fill job vacancies, indications are for wages growth.
- Uncertainty in the economic outlook exists in how household spending goes as inflation places more pressure on budgets.
In assessing future monetary policy actions, the RBA states it will be looking closely at household spending, global issues including COVID-related events, energy prices, agricultural commodities amongst other data.
The Board sees the June rate rise as another step in withdrawing the extraordinary level of monetary policy support provided to support the economy through the pandemic. Additional steps to normalise monetary conditions are expected in coming months. The size of further rate rises and when they will implemented will be based on analysis of data, labour market and inflation outlook.
The RBA Board next meets to review the cash rate on the first Tuesday in July. A date coinciding with the start of the new financial year.
The cash rate is a determinant for all lending markets and the 0.5% rate hike will flow through to interest rates offered by banks and non-bank lenders. Rates in different lending markets do vary as do the rates offered by different lenders.
Australians appear to be facing more pain in costs of living over the coming times as inflation is expected to rise further before moderating next year. The Government response in regards to cost of living expenses is highly anticipated to assist households and businesses.
Motor Vehicle Finance Considerations and Outcomes
For those with existing motor vehicle finance which has been secured at a fixed rate, there will be no change to the interest rate or repayments.
The scenario for many new car buyers has been extremely frustrating with lack of supply causing delays in purchases. Preventing many from taking advantage of the recent historic low interest rate situation. But for those seeking motor vehicle finance to purchase new cars, Jade Car Loans will still be working hard to achieve the cheapest rates from across our vast lender panel.
With rates in general on the rise, there will be lenders like ourselves that are keen to remain competitive and offer cheaper rates than many others in the sector.
With costs of living on the rise, buyers may look to lenders that have the ability to source these cheaper rates and to negotiate on more amenable terms. Lenders that can assist them achieve a repayment level that works with their budget today and anticipated into coming months.
For business buyers a reduced monthly finance payment may be achieved by adjusting the balloon or residual or requesting a longer finance term. For private buyers a lower car loan repayment may be achieved by opting to pay a deposit to reduce the loan amount requested. Use our commercial vehicle loan calculators to see how these variations can achieve the preferred repayment level.
Lenders will offer better business car loan interest rates to applicants with good credit profiles. Keeping the credit rating in check is extremely important.
For all buyers, taking advantage of our finance broker services to source the finance can reap significant benefits in achieving preferred outcomes in regard to finance term, cheaper interest rates and ultimately workable car loan repayments.
Contact Jade Car Loans on 1300 000 003 for better interest rates on business and private 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.