Australia has just held a Federal Election which has resulted in a change of government. Understandably this change may raise many questions in how a change of government will impact various areas and aspects of both business operations and personal/household budgets. For those intending to purchase a new car with finance may have queries around the effect, if any, that a change of government may have on car loan interest rates.
Any effect is both simple and complicated which we will attempt to explain in the most basic terms. For a start, an election and any ensuing change of government does not of itself trigger a change to interest rates. But over a longer period, the effect of government policies can change the economic indicators which the RBA uses to consider changes to the cash rate which then flow through to changes in lending rates such as car loan interest rates.
To allay any initial fears - businesses and individuals with current motor vehicle finance which has been secured at a fixed interest rate should not have their loan impacted by any change in interest rates by the RBA or by their lender. Fixed interest rate motor vehicle finance has an interest rate which is fixed for the entire loan period. Jade Car Loans arranges both Secured Car Loans for private buyers and our range of business vehicle finance at fixed interest rates.
Process for Setting Interest Rates
Interest rates in general have been very much in the news lately as the RBA has moved to increase rates in response to the sharp rise in inflation. Coming off the back of a period of historic low rates and being the first cash rate rise for 12 years, it’s not surprising that the May RBA rate rise has attracted more than the usual attention.
Interest rates are set by individual lenders based on the own individual corporate guidelines and using the official cash rate as essentially a starting point. The official cash rate is set by the RBA Board. The Board meets monthly (excepting January) to assess current economic conditions and to decide whether a change in monetary policy via a rate rise is required.
RBA Independent of Government
The RBA is independent of government. The central bank is not directed by government. The Board makes its decisions based on its assessment of what monetary policy is required to support the economy.
The government sets fiscal policy which relates to measures and policies introduced including in the Federal Budget. The RBA sets monetary policy.
The key issues that the RBA monitors in regard to changing the cash rate are inflation and unemployment. During the economic crisis of the pandemic when it an extremely high unemployment figure was feared, the RBA cut the cash rate to make lending more affordable and accessible to stimulate business investment and hence the economy.
As the economy bounced back, unemployment has dropped but inflation has surged. Conditions which have been in target range for the RBA to act and increase the cash rate. These actions have been independent of government actions. But the economic figures can be achieved in response to the outcomes of government policies.
So while their decisions are independent of government, RBA’s decisions do have a connection to government policy.
Impact of Government Policy
Politically-biased dialogue does occur around the performance of the economy and can be subject to opinion. Political parties will often attest to being responsible for improving the economy and blaming others for poor performance. In general terms, that’s politics!
In regard to any changes which may be expected through the current change of government, a number of observations can be considered:-
- While making its own policies, Australia operated very much in a global economy and aspects of what is happening in other countries can have effects on the domestic economy.
- New directions by incoming governments including any changes to policies can take time to enact legislatively, implement and to take effect. The ‘markets’ often react swiftly in response to a change in government and that may impact consumer and business confidence. But that does not directly change interest rates.
- Some commentators have noted that many of the policies taken to the recent election by the major parties were not hugely different.
- The Department of Treasury advises the Government on economic and related issues and policies based on current economic conditions. Departments do not change with a change of government and Minister. An incoming Treasurer will take briefings from Treasury.
- As mentioned above, the key issues that the RBA monitors in regard to changing the cash rate are inflation and unemployment. Currently unemployment is at the lowest in decades at 3.9%. Inflation on the other hand has been on the rise. Wages growth is also a key indicator of note.
- Slow wages growth in recent times has been highlighted as a matter of concern and contributor to the cost of living pressures that are experienced. If addressed successfully by government and wages growth does occur, this could influence RBA decisions on interest rates.
So as mentioned at the outset – it’s simple and it’s complex.
Outlook for Car Loan Interest Rates
Jade Car Loans will always strive to achieve better and cheaper commercial vehicle loan interest rates for our customers. The RBA increased the cash rate at its May meeting and that flowed through to all lending sectors. The RBA has indicated that it will continue to normalise increase rates to bring inflation into what they refer to as the target level.
For those seeking to take on motor vehicle finance, that means that interest rates in general are expected to rise again in coming months. The next meeting of the RBA is the first Tuesday in June and another rate rise may result.
Contact Jade Car Loans on 1300 000 003 to discuss better interest rate 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.