Especially for those needing to replace goods lost in the floods or businesses seeking finance to support their operation through the crisis, the RBA March announcement to keep interest rates on hold will be welcomed. For those looking to purchase a new car, boat, caravan motorbike, truck or equipment with finance, the decision to keep the official cash rate low will mean a continuation of current low loan interest rates.
The RBA Board meets monthly to make a decision on the official cash rate and the March meeting coincided with the emerging flood disaster on the east coast and the emerging crisis in the Ukraine. Both events with the potential to impact the Australian economy moving forward.
While the flood situation had not fully developed when the Board met on Tuesday 1 March, the Ukraine situation was mentioned in the statement issued by the RBA. It was noted a new basis for uncertainty.
The RBA has been facing quite a barrage of calls from economists, finance commentators and analysts in the sector to raise rates. Initially started in response to the over-heated property market in 2021 and more recently due to the surge in inflation.
But the RBA Board once again stated its firm position of being patient and providing supportive settings in monetary policy to achieve the unemployment and inflation targets. Targets the RBA is seeking before moving on interest rates.
The RBA March announcement notes the continuing global pandemic recovery and the sharp inflation rises in some counties due to supply disruptions and energy pricing. It was also noted that Australia continued to show resilience with a pick-up in business investment and consumer spending.
Dr Lowe, the Governor of the Reserve Bank of Australia (RBA) said that the 4.2% unemployment figure was evidence of the Australian economy’s resilience. The lowest unemployment figures in a 14 year period. Wages growth however, while picking up somewhat, remains at a low rate.
The inflation rate growth has been acknowledged as rising faster than expected by the RBA. The central bank’s forecast for underlying inflation is in 3.25% range for 2022 and 2.75% in 2023. The reasoning behind the forecast being a more regular consumption patterns returning and supply chain issues being resolved.
The bank’s target for inflation in order to signal a possible rate rise is sustained in the region of 2-3%. It does not see the current situation being conclusive that the current rate will be sustained.
While some analysts predict rates will rise in 2022, possibly in June and thereafter several times over the following months, the RBA Board continues to repeat its commitment to patience. It is holding its stance to achieve closer to full employment and target inflation before increasing the official cash rate.
The Board next meets in early April. By this time the Federal Budget will have been delivered and the impacts of the war in Ukraine on supply issues and energy prices as well as the financial impact on the economy of the devastating floods will be clearer.
December Quarter Accounts
Also announced in the first week of March were the December quarter National Accounts figures. While probably not totally relatable for many individuals, the data is significant for Government policy and business confidence.
Announced by Federal Treasurer Frydenberg, the figures reveal that the Australian economy grew by 3.4% in the quarter. The largest growth rate in 46 years. This showed, according to the Treasurer, that the Australian economy had outperformed many other nations with one of the strongest post-COVID recoveries on a global basis.
Mr Frydenberg noted the increase in spending especially in NSW and in Victoria post-lockdown which indicated that the economy’s recovery had not been put off the rails as a result of Omicron. A sentiment shared by the RBA.
The Treasurer will bring down the Federal Budget later in March and many will be watching for what measures will be introduced to assist their situation. Particularly in the area of taxation.
Rate Decision Impacts on Loans
So what do decision by the RBA Board on interest rates mean for consumer loans and business finance? In short, a lot. The lending sector set their own rates on their different types of loans and across their own markets by using the official cash rate as somewhat of a base starting point.
The official cash rate is set by the RBA and any increases or decreases are usually followed by changes in lending rates. The degree to which individual lenders adjust their lending rates based on RBA moves vary across the sector.
While the RBA continues to hold the cash rate at historic lows, loans across many markets remain extremely attractive. As the RBA Board describes it, the lending conditions are extremely ‘accommodative’. Although it should be noted that some banks and lenders have already increased their rates in expectation of a rate rise this year. This predominantly relates to the home loan market. A lending sector which differs in many ways to consumer and business loans for goods such as cars, bikes, trucks, equipment, boats and caravans.
At Jade Finance, these are our key lending markets and our rate remain low, as usual, across our loan portfolio. Those considering applying for a loan should appreciate that interest rates shown by lenders, including Jade, refer to applications for new goods by applicants with a good credit rating. Loans for bad credit and for used goods may attract a different rate.
With rising costs of living, achieving the lowest interest rates on new loans and at a fixed rate, may work towards buffering the impacts of price rises on other goods over the term of the loan. To see how a higher interest rate can affect loan repayments, simply refer to our loan calculators.
While the RBA left rates on hold for March, the message is still to act swiftly if considering a purchase with finance to avoid the impact of possible rate rises later in the year.
Contact Jade Finance 1300 000 008 for quotes on both consumer and business loans
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.