Anyone with a home mortgage or considering taking on a loan including motor vehicle finance will have been staying across the discussion around interest rates. The Reserve Bank (RBA) has kept the official cash rate ‘on hold’ at a record 0.1% since November 2020. But in recent months, the economic conditions are increasingly reaching the RBA’s targets for a rate rise.
There are strong indications that a rate rise will occur in the very near future. But at its April meeting, the RBA Board left the rate steady again at 0.1% which was not unexpected. But there is a slight change in the comments in the statement delivered with the rate announcement.
The key point picked up by analysts and regular watchers was the omission of the phrase which the RBA has used in rate decision statements for many months – the ‘preparedness to be patient’. Drawing the conclusion that an increase in the cash rate is on the way.
As we have constantly mentioned in posts over recent months, those considering motor vehicle finance for new car purchases should act as quickly as possible to ensure they achieve the cheapest rates before the rise.
We provide a summary of the RBA April 2022 statement and the outlook for motor vehicle finance with the prospect of interest rate increases in coming months.
Reserve Bank of Australia – April 2022 Statement
The RBA Board met as scheduled on Tuesday 5 April to make a decision on interest rates. In announcing the decision, RBA Governor Lowe noted that in many areas of the world there had been a sharp increase in inflation and the supply chain issues, Ukraine invasion as well as strong demand are contributing to this pressure on prices.
Key points from the statement:-
- Australian economy continues to show resilience.
- Pick-up in spending, increase in investment by business.
- Unemployment at 4% and RBA forecast for a fall below this rate during 2022 and remain there in 2023.
- Further increase in wage growth expected but only gradual.
- Higher petrol prices and other goods will further increase inflation in the coming periods.
- Lending conditions remain accommodative with low interest rates.
In the coming months the RBA will have available additional data and evidence regarding inflation and labour situation. This evidence will be assessed by the Board. As mentioned above, no mention of being patient while inflation and unemployment targets are reached.
The RBA Board holds their next meeting on rates on first Tuesday in May. This will be in the middle of the Federal Election campaign. While the RBA is independent of Parliament/Government processes, it is widely considered that it would be unlikely that the Board would act in May.
The major banks have all tipped the 7 June RBA Board meeting for a rate rise. But, be mindful, this may be the first rate rise not the only rate rise in 2022. It is not inconceivable that the RBA could lift the cash rate on several occasions into the future. In fact, some of the country’s leading banks have tipped that this will be the case. Reports quoting them saying possibly four or five cash rate increases could occur over as little as a six month period.
Rate Rises and Car Loans
Will a rate rise mean the end to Jade’s affordable business car loan interest rates? Cheap is a relative concept and we have always adhered to our policy of achieving the cheapest rates, regardless of the market situation. When the RBA lifts the official cash rate this will flow through to rate increases in lending markets.
Interest rates have not actually increased for over 12 years. So for many car buyers, this will be a new experience. After the question of when will rates rise is resolved, potential buyers should be asking by how much will rates rise?
This can be key to car buying decisions. When cutting the cash rate in 2020 especially, the RBA did so in small increments of 0.15% etc. The rises may also be in small increments. Those increases then flow through to the lending markets. This is where it is up to the individual banks, finance companies and other non-bank lenders to adjust their interest rates.
Lenders will make their own decisions on whether to pass on the full rise, part of the rise or raise their rates at an even higher rate. This will flow through to the motor vehicle finance sector.
Those planning a car purchase with finance can use our business car finance calculators to see how an incremental difference in rates impacts the repayment estimate for certain loan amounts. Buying decisions may include considering a lower priced vehicle to maintain the repayment target being sought or to rework business or household budgets to allow for any increase.
Business buyers can also adjust the balloon/residual to reduce the monthly repayments to allow for an increase in interest rates.
Achieving Cheapest Motor Vehicle Finance Rates
The availability of new motor vehicles has been a major obstruction for buyers keen to buy new cars over the past few years. Quite an annoyance while rates are low and for business buyers, EOFY is approaching. Conditions which make it the ideal time for acquire new vehicles with finance.
Regardless of lending rates, Jade Car Loans has always adhered to our better interest rate policy. Our consultants will always source the cheapest rate available from across the market. There are actions that buyers can take to ensure they achieve the required motor vehicle finance deal. We’ll address these in detail in an upcoming post.
For those that can source the vehicle they want now, getting in quick, before the predicted June rate rise is highly advisable.
Contact Jade Car Loans 1300 000 003 for a quote on personal or business 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.