Car finance interest rates on new loans and existing loans with a variable interest rate are likely to increase following the RBA rate rise on 29 September. The Board of the Reserve Bank unanimously decided to increase the cash rate by 0.25% to a 15-year high of 4.6%. The increase was widely expected following the continued increases in inflation which is the RBA’s main focus with monetary policy decisions.
For those looking to take on finance to upgrade vehicles in the short or near term, the big question will be how will this decision and the next November cash rate decision affect motor vehicle finance rates?
To provide buyers with some level of clarity in what is a complex economic scenario, we cover off on the key points in the latest rate decision statement and comments by RBA Governor Bullock in the media conference.
RBA Rate Rise September Decision
The scenario around this year’s rate rises is not as clear and easy to understand as previous rate hike periods. The high level of inflation is at the core of the RBA’s decision and recent data has the rate higher than expected at the last Reserve Bank Monetary Policy Board meeting. The ‘upside’ risks that the Board had previously identified have started to materialise.
There are complex issues in the domestic economy, and the Middle East conflict is just making a bad situation even worse. Specifically, the Middle East conflict has gone on for longer than the RBA and others expected. As Governor Bullock put it so bluntly in the media conference, it has made us all poorer.
As noted by the Board, global fuel prices are high and the flow through effects of higher fuel prices go beyond the bowser. Transport costs are affected and that means increases in just about everything we buy. There are effects on fertiliser prices which flow through to produce prices.
Another issue which has entered the interest rate discussion is the boom in AI. How? On several fronts including driving up technology prices, attracting investment and drawing resources to construction of data centres.
In response to a question in the media conference on unemployment, Governor Michele Bullock said that the unemployment rate is still low historically, but productivity was ‘doing nothing’, noting that the RBA can’t do anything about productivity. There is excess demand and supply needs to pick up. While Ms Bullock noted some regulatory action which may assist productivity improvements, she said it was incumbent on businesses to take opportunities.
In the statement announcing the September cash rate decision, Governor Bullock notes the cost pressures being experienced by businesses. The Bank’s liaison with the business sector indicates that many businesses are passing on those costs or intend to, in increased prices.
The Board’s key focus is to ensure that high rates of inflation do not become embedded in the economy. To achieve this objective, demand needs to slow. Supply is currently not keeping up with demand.
Monetary Policy, that is interest rates, is essentially the only tool that the RBA has to affect inflation. As Ms Bullock mentioned, it has been proven that monetary policy does work to bring down inflation. It encourages savings over spending, impacts asset prices and exchange rate impacts make imports cheaper, altering the supply/demand equation. Essentially interest rate rises still work. People don’t necessarily see the mechanisms that bring prices down.
What’s ahead? The RBA Board continues to focus on bringing inflation back down to the 2-3% target and will increase the cash rate again, if considered necessary. The next decision will be announced on Tuesday 3 November, which is Melbourne Cup Day. Will it be the race or the rate that stops the nation? Following the August inflation information released by the ABS on 30 September, another rise is highly likely.
Car Finance Interest Rates Outlook
For those with existing vehicle finance at a fixed rate, the latest cash rate decision will not impact their rate or repayments. Fixed rate loans remain unchanged over the full fixed term. Fixed rates are a feature on our Secured Personal Car Loans and on business finance products – Lease, Chattel Mortgage and Commercial Hire Purchase.
Car loans with a variable interest rate, which are less common than fixed rate loans, will likely see an increase in their rate. Following a cash rate decision, either up or down, it is up to individual lenders to make their own decision on the rates they offer across their credit product portfolio. Typically, most will react with changes to their interest rates.
Buyers planning to proceed with a purchase with finance can consider actions to improve their prospects of achieving their lowest possible car loan interest rates. These actions may include addressing their credit profile, making a larger deposit to reduce the loan required, and using a broker to source the most suitable lender and best market rates.
For competitive car finance interest rates following the September RBA rate rise, connect with Jade Car Loans for a large selection of lenders and expert brokers to source your best rate. Connect online or by phone on 1300 000 003.
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
