For any individual or business looking to take out finance for a major purchase – car, boat, caravan, motorcycle, truck or equipment, staying across the interest rate scenario is top of mind. Interest rates in all lending sectors are determined, at least in part, by the official cash rate as set by the Reserve Bank of Australia (RBA) as part of its monetary policy responsibilities. The bank’s board meets monthly (excluding January) to make a decision on whether to cut or increase the cash rate. The latest meeting was held on 7 December and Jade Finance covers off on the RBA December rate decision and outlook and what that decision means for lending interest rates in general.
December 2021 RBA Board Rate Decision
The December meeting was the final one for the RBA Board for 2021 and comes as the official rate had been held steady at the historic low of 0.1%. This 10 basis points rate has been in place since the last cut in November 2020. Calls from some economic analysts and others for the RBA to lift rates to cool the housing market have been rejected by the Governor of the RBA Philip Lowe on numerous calls. But a slightly different call has recently emerged – to lift rates in the face if inflation pressure.
Despite opinions and commentary, the RBA held rates steady and here are major point which can be taken from the decision and the statement issued as explanatory notes:-
- Official cash rate held at 10 basis points, 0.1%
- Following the setbacks from the Delta outbreak, the economy is in recovery mode.
- Substantial support via policy and from the high level of vaccination in the population underpin the recovery.
- Spending from households continues to rebound strongly.
- Improvement is seen in business investment.
- The emerging Omicron variant of the virus is a source of some uncertainty. However, it is an expectation that this uncertainty and Omicron will not derail the economic recovery process.
- The economy is expected to be back on the pre-Delta growth path in the first quarters of 2022.
- As strong labour market recovering is being indicated by high job advertisement numbers and reports of businesses facing difficulties in hiring the number of workers required to fill job vacancies.
- Growth in wages has pick up but that growth is at low rates and has only returned to pre-pandemic levels. Continued pick-up is expected due to tightening in the labour sector.
- There has been an increase in inflation: underlying inflation 2.1%, CPI inflation 3%.
- CPI inflation driven up by global supply chain disruptions, home construction cost rises and high petrol prices.
- Forecast by the RBA is for 2.5% underlying inflation over the year 2023.
The RBA has again repeated that its target to trigger a cash rate rise is improved employment figures and a sustained rate of inflation around 2-3%. At its next meeting, not scheduled until February 2022, the RBA Board will assess the economic indicators and global factors in relation to progress towards its goals of full employment and target inflation levels. Achieving these target is expected to take time and the RBA Board has stated it has the patience.
Lender and Loan Interest Rate Variations
While there is only one official cash rate, there are many variations on lending interest rates. Interest rates on similar loans such as for motor vehicles or equipment, vary from lender to lender. This reflects that particular lenders funding costs and their involvement in lending in that sector. Specialist lenders in a particular lending market can offer more competitive rates due to their special interest.
Interest rates are also different for personal loans compared with business finance. Business rates are lower than consumer rates. Consumer also have Interest Rate and Comparison Rate to consider.
Interest rates vary across different sectors – different rates can apply for say car loans v caravan finance; boat loans v motorbike loans; business vehicles v equipment. In the business equipment finance area, different rates can apply in different industries.
Also in the business finance area, different interest rates apply to different finance products: Chattel Mortgage and CHP have the lowest rate, Lease is usually slightly higher and Rent to Buy the highest.
Securing Fixed Rate Loan Safeguards against Rate Hikes
While interest rates have been at historic low levels for over 12 months now, both businesses and individuals should avoid complacency. It is a certainty that rates will rise at some time in the future, possibly at least 2024 but it could come sooner.
In order to avoid any rate rise increasing the costs of and repayments of a loan, loan seekers can focus on securing the cheapest fixed interest rate achievable while rates are at the lowest levels. This ensures the repayments will also remain fixed over the entirety of the fixed loan term.
Fixed interest rate loans are available across the Jade Finance portfolio. Refer to our loan comparison rate charts and calculators.
Contact Jade Finance by phone 1300 000 008 for quotes on cheap interest rate finance and 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.