As predicted, the Board of the Reserve Bank of Australia (RBA) lifted the cash rate at its 5 July meeting. This is the third month in a row of RBA rate rises as the central bank addresses the surging inflation in Australia. RBA rate rises have an impact on car loan interest rates putting greater importance on engaging a finance broker to source the cheaper rates available.
The July rise in the cash rate is 0.5% which raises the rate to 1.35%, increases of 1.25% in just the past 3 months with further rises strongly tipped for at least August. The key objective of these rate rises is to address inflation. An issue that households and businesses are dealing with on a daily basis with soaring prices across many markets.
Inflation is currently at 5.1% and expected to increase further to around 7% in 2022. Inflation figures will be released later in July and these are likely to determine the RBA’s August decision. The effect on inflation of monetary policy that is rate rises takes some time to kick in. It is not an instant outcome. So households and businesses face the dual challenges of continuing high prices and higher interest on loans and finance until the new policy settings take effect.
Treasurer Jim Chalmers has urged the banks to pass on the increase in interest rates to savings accounts. Many Australians have money in savings and that little extra in interest may ease at least to some extent, rising outgoings.
RBA July 2022 Statement
The statement released by the RBA Governor Philip Lowe on 5 July outlines the reasoning behind the July rate hike and the Board’s outlook moving forward. The statement notes the high rate of global inflation which is being driven higher by a combination of events: supply chain disruptions primarily caused by the ongoing COVID situation; Ukraine war situation; and the strength of demand in a climate with reduced capacity.
The Board notes that monetary policy internationally has responded to the high rates of inflation but it will take time for the effect to be felt. Inflation rates in Australia are high but not at the same levels as in other countries.
The global issues are noted as accounting for much of the rises in Australian inflation but there are also local factors contributing to the rise. These include strong demand and the continuing labour market tightness. The labour market issue reduces the capacity of businesses to realise full production which flows through to supply.
The current flood situation, the fourth this year in some regions, is having serious impacts on produce prices. The RBA forecasts inflation to reach a peak in late 2022 before declining to the 2-3% range in 2023. Even if inflation is at high levels, the Board expects it to moderate when the global supply issues ease and when the prices of commodities stabilise.
A more ‘sustainable balance’ between supply and demand for goods and for services will be assisted through the higher rates of interest. The medium-term outlook for inflation is as the RBA puts it ’well anchored’. The complete set of the forecast updates will be available with the June CPI figures due next month.
Governor Lowe repeated a number of comments from previous Board statements. Those being the resilience of the economy in Australia and the tight labour market with unemployment remaining steady at a very low 3.9%.
An aspect of concern for the RBA Board in relation to economic outlooks continues to be household spending behaviour with budgets under pressure with rising prices and rates. The Board will paying close attention to this and the global outlook.
The closing comments in the July statement include that the July rate rise is another step in withdrawing the extraordinary support through monetary policy provided during the worst effects of the COVID pandemic. This has been stated previously as the RBA looks to return monetary policy and the cash rate to normal levels.
The RBA is expected to take additional steps in coming months. When and by how much further rate rises will be will be based on data and the inflation and labour market outlooks.
Interest Rate Outlook
Some economists are saying if that rate of inflation is extremely high in the June CPI data, the RBA’s August rise could be more like 0.75% than 0.5% which has been intimated by Governor Philip Lowe. But others expect the rate may only be 0.25%.
As mentioned above, the flood scenario which has hit the produce sector hard in NSW will continue to put pressure on supermarket prices in the time ahead. The COVID situation in Australia continues to be a factor. The continuing large case numbers put people off work and place pressure on business to achieve production targets. This reduces supply and puts pressure on prices.
Until the effects of these recent rate rises start to have an impact on inflation, it can be expected that interest rates will remain at higher levels. Though this should be viewed in context. The cash rate of 0.1% which was in place from November 2020 to May 2022 was an historic low and part of extraordinary measures. So the current rises are restoring rates to more normal levels.
Rate Rise Impact on Motor Vehicle Finance
RBA rate rises for the cash rate flow across all lending markets. The major banks passed on the rate rise within days of the RBA meeting. Some actually moved prior to the meeting to lift their rates.
For those that currently have fixed interest rate car loans, the RBA rate rises will not impact that loan or change the repayments. With all our personal car loan and business vehicle finance products we secure these with a fixed business car loan interest rate.
With possibly a similar RBA rate rise expected in August, the message is extremely clear. Get in quick for car loans and engage our services to secure the cheapest motor vehicle finance rate from across our vast lender panel. Rates do vary across the car loan market, and now, with the help of our business vehicle finance calculator, is a very important time to secure the cheapest rate to ensure lower repayments over the term of the loan.
Contact Jade Car Loans on 1300 000 003 to secure the cheapest interest rate car loans from across the motor vehicle finance market.
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