The Board of the RBA met again last week for its scheduled meeting and once again, lifted the cash rate by a significant amount. This is the third consecutive month that the RBA has lifted the cash rate and has clearly stated that more rises are ahead. The July rate rise of 0.5% lifts the cash rate to 1.35%. So in just these past few months, we’ve seen the rate increase by 1.25% from that historic low of 0.1% which had been in place since November 2020.
When the RBA lifts rates the impact is felt through the lending sector including on the marine finance market. For those planning boat purchases with marine finance in the months ahead, staying across the RBA’s outlook can be advantageous. The statement that the Governor, Philip Lowe, issues with each rate announcement provides important insights and forecasts that may assist buyers time their purchases and finance applications.
The main purpose of the current rises in the cash rate and the flow-on through lending rates is to curb soaring inflation levels. The current 5.1% rate of inflation is forecast to reach 7% in the coming months. The latest data on inflation with the CPI figures is due for release later in the month and will be a guide for the RBA Board regarding their August decision.
It should be noted that while we have had three consecutive months of rate rises, the effects of these on inflation will not be recorded immediately. Monetary policy is effective for bringing down inflation but it takes time. For households, that means more pain in prices for goods and services before relief arrives.
For those with funds in saving accounts that have been earning minimal interest while rates were low, relief may be in sight. While the banks are not always as fast to pass on rate rises to savers as they are to their borrowers, the Treasurer is urging them to do so.
Statement by Governor Lowe
The statement for the 5 July RBA Board meeting provides the Board’s rationale for the latest rate rise and how they see the situation playing out ahead. Global inflation rates headed the statement with a comment that these were affecting Australia’s inflation rate.
The global inflation situation is being pushed up as the pandemic supply chain problems persist as does the war on Ukraine and the demand-supply situation in general. Countries across the globe are addressing inflation with individual monetary policy decisions. We’ve seen the Federal Reserve Bank (USA) lift their central rate as the country is already experiencing 7+% inflation rates. Australia’s rate is high, but not as high as some countries.
Local domestic issues are also contributing to rising inflation according to the RBA. The tight labour market is reducing the capacity of many businesses to achieve output necessary to meet the strong demand. The impact of floods is also a major contributor to price rises.
The Board’s forecast is for inflation to peak later in the year and then decline towards the target range of 2% to 3% next year. The return to target inflation is being assisted by the rate rises. Specific data on the inflation rate will be released in the coming weeks including CPI figures for June.
In general comments in the statement, the Board repeated some of their previous comments. Including that, the Australian economy was showing resilience and the low unemployment rate which remains at a steady 3.9% in the most recent figures.
The RBA Board view the July lift in the cash rate as another move towards the withdrawal of the extraordinary levels of support through historically low interest rates provided to assist the economy during the pandemic crisis. As the economy has recovered, Governor Lowe has stated that this level of support is no longer required.
These cash rate rises are part of normalising monetary policy. The Board has flagged that further lifts in the cash rate will be required. Decisions around the specifics – timing and amount, will be guided by the upcoming data releases.
The RBA Board is next scheduled to meet to make an interest rate decision on the first Tuesday in August. A further increase is highly expected.
Commentary around Outlook on Rates
While the RBA is an independent body, many look to the commentary in the financial press for indications of what could be ahead regarding interest rates. The June and July rises were 0.5% and the Governor has implied a similar figure for August.
But some are predicting it could be higher, in the vicinity of 0.75% while some say 0.25%. At this point, commentary is mixed. How inflation pans out will be key. The effect on food prices especially as a result of the July flood event on top of the ongoing recovery from the floods earlier in the year will likely be of great significance. These will be driving inflation.
The COVID situation locally continues to place labour pressures on businesses which restrict their ability to operate to optimal levels. This restricts the ability to meet demand.
While focussing on rate rises is important for those considering taking on finance, the actual current rates are part of the normalising back to pre-pandemic levels. Those record low rates were exceptional not the rule.
Boat Loan Impacts
Fixed rate boat loans which are currently in place will not be impacted by the latest rate rises. But lending rates will increase as further RBA rate rises are announced. For those planning that special boat purchase, it could be wise to move quickly with the purchase.
Every increase in the rate on a boat loan can add up to an increase in boat loan repayments. Refer to the boat loan calculator for an indication of what that may mean for the boat you are considering.
Speak with Jade Boat Loans by calling 1300 000 003 for cheaper interest rate boat loans.
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.
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