RBA Increases Interest Rates at May Meeting

The speculation around when the Reserve Bank of Australia (RBA) will move on increasing the cash rate is over. At the meeting on Tuesday 3 May 2022, the RBA Board made its determination to lift the cash by 0.25%. While highly expected that there would be a rise in May or June, the amount of the increase was greater than many anticipated. Also, many thought that the RBA would hold off until June due to the timing of the 21 May Federal Election. But despite some politicising of the decision, the RBA makes its decisions completely separate from and independent of government.

The lift in rates is the first for 12 years and comes on the back of historic low rates since November 2020. Calls from finance and economic ‘voices’ had been increasing for some time as inflation was surging on the back of Australia’s remarkable recovery from the downturn caused by the pandemic.

The RBA makes its rate decisions via a statement and it can be worth reviewing this to gain a better understanding of why rates are moving and provide some insight into what this may mean moving forward for boat loan interest rates.

The monthly RBA statement offers the rationale behind the decisions made by the Board as well as provides the Board’s forecasts for the economy in the coming periods. We have reviewed the May statement and provided a summary of the content as most relevant to lending markets and especially marine finance.

Summary: May RBA Statement

The Governor of the RBA, Dr Philip Lowe issued the May 2022 Board statement. The full statement can be accessed at the RBA website for those interested in reading the fine details. For those wanting an overview, we have provided this summary of the major points:-

• According to the RBA Board, the timing is appropriate to commence the withdrawal of monetary support by way of the historic low interest rates. Support was provided to the economic in the crisis stages of the coronavirus pandemic.
• The economy has shown resilience and that has resulted in inflation picking up faster than the Board had expected.
• The inflation figures in addition to the pick-up starting in growth in wages, is seen as the right timing to start the process of ‘normalising monetary conditions’. (Explainer notes: the cuts to the cash rate in 2020 were seen as extraordinary measures and resulted in historic low rates. Now the economy is returning to pre-pandemic levels, it is seen as time to restore cash rate and hence interest rates to what is considered normal levels.)
• 4% unemployment and continuing to decline. Expected to further decline to 3.5% early next year. The Board then expects unemployment to remain in the vicinity of that rate. It is noted that this rate is the lowest unemployment level in around 50 years.
• Outlook for economic growth is positive, but uncertainty does exist regarding the impacts of world events. In particular, the Board mentioned the war in Ukraine, the continuing COVID situation especially in China as a major manufacturer, and the high global inflation figures.
• Additionally mentioned in another longer speech, RBA Governor Lowe mentions domestic issues causing rising inflation. Issues such as businesses facing staffing issues that prevent them from operating at full levels and meeting high demand. Plus many businesses pass on to consumers the cost increases they are experiencing.
• While lower than in many other economies, the increase in inflation in Australia is significant and larger than had been expected by the RBA Board.
• Further rise in inflation is expected but decline to follow as the issues around supply, especially global-based issues, are resolved.
• Inflation forecasts: 6% and underlying 4.75% in 2022, underlying 3% by the middle of 2024.
• Inflation forecasts based on assumptions of additional increases in interest rates.
• Evidence of growth in wages particularly increases via wage increases in the private sector.

The Board of the RBA had stated that it is committed to taking action required for inflation to return to its target level. This, it states, will require additional interest rate rises.

Impacts on Lending Markets

The official cash rate the RBA Board is tasked with determining forms what can most simplistically be described as a starting level for the lending market. Individual banks and lenders use this rate and then set their rates according to individual guidelines. The rates in different markets, such as boat loans, vary.

Increases in the cash rate impact lender markets directly with banks and lenders responding to RBA decisions by changing their rates. In this case, increasing. The exact amount each will increase rates is an individual decision. As an example, several of the major banks passed on the full 0.25% increase to their home loans immediately after the RBA announced its May decision.

We expect our lenders to increase interest rates for boat financing in response to the May RBA decision. Fortunately, due to our extensive and varied lender panel, Jade Boat Loans has access to many lenders so we are always well-placed to secure the cheapest boat loan rates available to suit individual customers.

For boat buyers planning their next purchase, the message is quite clear from the RBA – more lifts in rates are ahead. While it may be challenging to put RBA rate rises into the context of individual boat loans, focus on loan repayments to get a better perspective. Use our boat loan repayment calculator to see how even a 0.25% difference in interest rates makes a difference to boat loan repayments.

Having done that, take heed of the RBA outlook that further rises are ahead, and get in fast to secure your new vessel beforehand. The RBA Board’s next rate decision meeting is in early June.

Contact Jade Boat Loans on 1300 000 003 for a boat loan quote

DISCLAIMER: THE INFORMATION AND SPECIFIC DETAILS CONTAINED IN THE CONTENT OF THIS ARTICLE HAVE BEEN PREPARED AND ARE PRESENTED PURELY AS GENERAL INFORMATION AND NOT INTENDED AS THE ONLY SOURCE OF FINANCIAL ADVICE FOR BOAT BUYERS AND LOAN BORROWERS. FOR THOSE THAT CONSIDER THEY REQUIRE SPECIFIC ADVICE, THEY SHOULD CONSULT WITH A FINANCIAL ADVISOR. LIABILITY IS NOT ACCEPTED IN REGARD TO ERRORS AND MIS-PRESENTED DATA AND DETAILS HEREIN.