It’s been nine years since Australia had a change in government at the federal level. The outcome of the May 2022 election has led to a change in Canberra and coincides with the RBA normalising the cash rate with rate hikes. This may lead to queries, doubts and uncertainties for RV buyers as to caravan finance interest rates.
Understanding how caravan finance interest rates are set by lenders may help buyers appreciate any connection or effect as a result of the change of government. Having a clear understanding of the interest rate scenario can boost confidence to proceed with a caravan finance application, have a better grasp on the RV finance market and assist with choice of lender.
Before getting into the explainer, we note:-
- RV owners with existing caravan finance will not have the loan affected by any change of government at federal or state level.
- Caravan finance applications currently being processed and pre-approved loans in place would not be impacted by the change.
- The structure and range of caravan finance options is also unaffected.
- The results of elections don’t have direct consequences for interest rates. However, policies implemented by governments can impact the economy and the indicators which are used by the RBA when making cash rate decisions. This would typically be a more medium to long-term effect.
- The RBA and not the government sets the official cash rate which then determines lending interest rates across the loan markets.
RBA Role and Responsibilities
There is both a straight answer and a more complex explanation of the role of the RBA in setting interest rates and the impact of government on interest rate decisions. The most important factor to appreciate is the Reserve Bank of Australia, the country’s central bank is an independent body and determines monetary policy for the country.
The RBA is not a government department and is not directed by the government of the day and the RBA Board does not take advice or instruction from the Treasurer. It monitors and assesses economic conditions and makes its own decisions on movements in the cash rate.
The key economic indicators which are monitored by the RBA are unemployment figures and the rate of inflation. In addition, global factors which are, or have potential to, impact the Australian economy are closely watched and assessed.
Global issues which have recently been highlighted in this regard by the RBA include war in Ukraine, supply chain issues, global fuel prices and continuing disruption from the pandemic overseas, most recently the lockdowns in China.
The RBA Board meets on the first Tuesday of each month with the exception of January to discuss the cash rate. A statement is issued following each meeting, which announces the decision, the reasoning behind the decision made and key points for the outlook.
As pandemic stimulus support for the Australian economy, the RBA slashed the cash rate several times in 2020. The Board then held the rate at the record low through 2021. With recovery underway, unemployment at target low rates and inflation rising, the RBA is undertaking a process of normalising interest rates. In other words, returning the cash rate to levels pre-pandemic. This is considered a lever to address rising inflation.
The role or effect of government in this monetary policy process could be most simply explained as – policies implemented by government having an impact on economic factors such as inflation and unemployment which would then flow-through to RBA decisions.
Growth in wages is currently another aspect being closely monitored by the RBA and has been ear-marked as a major issue for the incoming federal government.
However, it should be appreciated that any policy shift introduced by government may take some time to have a clear and major impact. Some policies would need to be passed through the Parliament, which can be in itself a lengthy process. The policy then needs to be implemented.
Caravan Finance Rates
Once the cash rate is set by the RBA, the banks and other lenders across all lending markets reassess their own rates. Each will have its own approach to raising or lowering, whichever is the case, following a RBA Board decision.
Currently, after a long period of record low rates, interest rates across the markets are rising as the RBA increased the cash rate in May and looks set to do so again in the coming months.
For RV buyers seeking caravan finance, it becomes more important to secure the cheapest interest rate loan possible. Jade Caravan Finance assists buyers in that respect with our accreditations with over 40 banks and non-bank lenders. So there is no need for our customers to contact multiple lenders to request quotes to compare. We handle all that on their behalf.
As the new federal government settles in, the RBA Board is set to meet in just over a week.
We hope this basic explainer has assisted those seeking or holding caravan finance to better understand how interest rates are set. If you have any further queries please reach out to us to discuss with one of our consultants.
Contact Jade Caravan Finance on 1300 000 003 to discuss your caravan finance requirements.
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.
