In a move that was only surprising in the amount, the Board of the Reserve Bank of Australia (RBA) announced another interest rate rise in the cash rate at its 4 October meeting. Prior to the meeting, pressure had been growing on the RBA to temper its approach to rate rises after significant rises each month since May. The grounds for such pressure is the growing risk of a global-based recession. Treasurer Jim Chalmers said this week that the possibility of this had moved from the possible to the probable.
The smaller than anticipated increase for October of 0.25% is a slowing in rate rises from the previous 4 months of 0.5% but the RBA has signalled further increases are ahead.
RBA Board Statement
The RBA Governor Philip Lowe released the monthly statement following the Board meeting on 4 October to advise of the decision, the reasoning and outlook. The decision was to lift the cash rate by 0.25% taking it to 2.6%. The statement leads in with repeating the Board’s commitment to returning the rate of inflation to the target range of 2-3% over time.
The early part of the statement also gives an indication of what may be in store with the Governor saying that further rises will likely be needed in the period ahead. Dr Lowe acknowledges that the official cash rate has been raised ‘substantially’ in a short timeframe. The Board reflected on this in deciding on the 0.25% increase for October and is assessing the outlook for Australia in regard to economic growth and inflation.
Key points in the statement:-
- The inflation rate is too high in Australia.
- The high rate of inflation is explained to a great extent by global factors but the strong level of demand in Australia compared with supply is also contributing.
- In coming months, the expectation is for inflation to increase further before it declines towards target range of 2-3%.
- Inflation expected to moderate in 2023 as the global supply issues continue to resolve and increases in interest rates take effect.
- The RBA’s forecast is 7.75% for the CPI inflation rate during 2022, just over 4% in 2023 and approaching target at 3% in 2024.
- Terms of trade at record level boosting national income.
- Domestic economy growing solidly.
- Unemployment for August 3.5%, indicating ongoing tightness in the labour market.
- High numbers of employment ads and positions suggest unemployment will fall further in coming months before increasing with a slowdown in growth of the economy.
- Board is paying particular attention to the costs of labour and how firms set prices. Noting that price stability is essential to a strong economy.
Governor Lowe also repeated the priority of the Board of returning inflation to target 2-3% and doing so while retaining an even keel for the economy. Noting once again the narrow path to achieve the balance and the uncertainty existing.
Uncertainty is noted around the global economy which has shown deterioration in recent times. An additional source of uncertainty remains how consumer spending domestically responds to higher rates as the higher rates plus high inflation are pressuring budgets.
In summing up, Governor Lowe said that the October rate rise will assist in achieving a more sustainable demand-supply balance and was needed to reduce inflation. The key to what may lie ahead is contained in the wording that the RBA Board expected to raise rates further during the time ahead.
Significance for Motor Vehicle Finance Rates
The October RBA rate rise has resulted in the official cash rate increasing from 0.1% at the end of April to the current level of 2.6%. The flow-on effect of these decisions is for lenders to increase their own rates in the markets in which they operate. Following the 4 October decision, several of our key lenders - the four big banks in Australia plus Macquarie Bank, all raised their variable rates.
The effect is also felt through the motor vehicle lending market. The extent to which individual lenders will increase their own rates in response to RBA decisions are based on their own guidelines and policies.
The potential impact on car loan rates of the RBA October interest rate rise highlights the importance of seeking cheaper car loans through Jade Car Loans. With more lender choices to offer customers, we continue to source cheaper interest rates on both personal car loans and business motor vehicle finance.
With major banks still expecting the cash rate to reach 3% this year and the Board indicating further rises would be expected, it may be assume that further rises are a done deal. The next meeting of the RBA Board re rates is set for Tuesday 1 November – the annual Melbourne Cup Day rate decision.
Contact Jade Car Loans 1300 000 003 for cheaper car loans as interest rates continue to rise.
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