The RBA lifted the official cash rate at its May Board meeting, ending months of speculation around when the central bank would make a move amidst surging inflation rates. The RBA rate rise represents the first interest rate increase in 12 years and marks the end of the run of record low rates for loans for caravan purchase. The timing was also notable in that it comes amidst a Federal Election campaign, although this is not a first. The RBA apparently has moved to change rates during election campaigns previously.
The calls to raise interest rates have been growing for some time, originally as a result of rising house prices which had been driven by the record low lending rates. But the RBA held firm on its commitment to be patient in order for economic conditions to be in line with its targets and warrant an increase.
According to the RBA statement announcing the latest rate decisions conditions have been reached and the timing is appropriate for a rate rise and a normalising of monetary conditions. Predominantly being the fastest than expected bounce back from the pandemic by the Australian economy and the resultant rise in inflation.
The increase of 0.25% was higher than some analysts and lenders had expected. It has been expected that the RBA would move to raise rates several times in 2022, but possibly in smaller increments.
The reasoning behind the RBA rate rise and the Board’s outlook for the economy and future rate rises are covered in the May RBA Monetary Statement announcing the rate rise. We have summarised the key issues and major points in the statement to assist our caravan finance customers get their head around the why and what next of the RBA’s latest decision.
Summary of Key Issues
Dr Philip Lowe, the Governor of the Reserve Bank of Australia issued the May statement as he does after each meeting of the RBA Board. In addition to this statement, the Governor also issues a lengthier document with greater detail on some aspects. These documents can both be accessed by the public at the RBA website.
Key issues include:-
- RBA Board considers this to be the appropriate timing for the start of the withdrawal of monetary support. Support that was introduced as stimulus and support measures during the pandemic. (Note: monetary support meaning lowering of interest rates to make lending cheaper to stimulate especially business investment.)
- The Australian economy has been resilient to the economic effects of the pandemic and inflation has increased at a faster rate than had been expected.
- Now is seen as the right time to start normalising monetary conditions. The historic low rates seen as extraordinary conditions.
- Unemployment has been a key target for the RBA when making rate decisions, as noted in previous statements. The rate currently at 4% is in the target range. The RBA expects the unemployment rate to decline further to around 3.5% around early 2023. The Board has noted this rate as the lowest unemployment rate in Australia in about 50 years.
- The economic growth outlook is positive. But global impacts create uncertainties.
- Uncertainties particularly noted around the ongoing global COVID situation; the surge in cases and lockdowns occurring in China as a major manufacturing country; global inflation which reduces buying power; and the war on Ukraine.
- Domestic matters in regard to the rising rate of inflation were also mentioned by Governor Lowe. These matters include the pressure on the capacity of business to meet demand due to ongoing staffing and labour shortages and that businesses were passing onto to customers the increased costs they faced.
- Inflation increasing at a greater rate than had been expected by the RBA Board. However, it was noted how the inflation rate in Australia is lower than many global advanced economies.
- Additional rises in inflation are expected prior to falls as supply issues start to be resolved.
- Inflation for 2022 forecast to increase to around 6% with 4.75% underlying inflation. By the middle of 2024 underlying inflation is expected to have decreased to around 3%.
- An important criteria around the forecast for inflation is that these are made on the assumption that more interest rate increases will occur.
- In regard to wage growth, the Board states that it has evidence that it is increasing as private sector wage increases are made.
The final and possibly the most important key issue for those planning to purchase new RVs with finance, is that the RBA Board says additional interest rate increases will be required in order for inflation to return to its target levels. In short, expect more rate rises!
Caravan Finance Considerations
The lending market, including for caravan finance, use the cash rate from which to set their individual rates for different loans. So any rise in the cash rate by the RBA subsequently flows through to increases in many lending markets.
It is clear from the May RBA statement that further rate rises are on the way. So caravan buyers are urged to move forward with their buying plans so finance can be secured prior to further rises in caravan loan interest rates. To see how much a rate rise may be reflected in loan repayments, use our Interest Rates Comparison Calculator. The results calculated could be motivation to move!
As a broker-style caravan finance lender, we are accredited with many lenders, so we will always have the ability to access the cheapest rates in the market at any particular time. So regardless of rate rises across lending markets, our consultants will remain, well-placed to secure better interest rate caravan loans.
Contact Jade Caravan Finance on 1300 000 003 for better interest rate caravan finance.
DISCLAIMER: THE DETAILS AND INFORMATION IN THIS CONTENT ARE PREPARED AND PRESENTED PURELY FOR INFORMATION AND NOT INTENDED IN ANY WAY AS THE SOLE SOURCE OF FINANCIAL ADVICE FOR CARAVAN PURCHASING. IF ADDITIONAL FINANCIAL ADVICE IS REQUIRED, READERS SHOULD REFER TO A FINANCIAL ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY ERRORS, PRODUCT DESCRIPTION VARIATIONS, OR OTHER MISREPRESENTATIONS OF INFORMATION AS PRESENTED.