The Reserve Bank of Australia (RBA) made its final decision for the year on December 7, 2021, regarding the official cash rate. As anticipated by some financial experts, the RBA chose to keep the rate unchanged. While this decision wasn't surprising to some, there have been calls from certain sectors for the RBA to consider raising rates due to factors like significant increases in housing prices and growing inflation pressures. Jade Trucks offers an overview of the implications of this decision and how it might impact truck loans in the future.
In recent times, truck operators have faced numerous cost increases, particularly related to fuel expenses. On top of this, there are additional financial burdens stemming from the ongoing effects of the COVID pandemic, such as expenses related to testing protocols, border restrictions, and heightened demand for delivery services. These escalating costs directly affect the overall profitability of trucking businesses. Hence, when acquiring a new truck and considering financing options, buyers are especially focused on the overall cost of the loan, with a keen eye on the interest rate. This is why many prudent operators closely monitor the RBA's monthly cash rate determinations.
December RBA Meeting Outcomes
On December 7, 2021, the Reserve Bank of Australia (RBA) Board convened for its final meeting of the year to deliberate on any potential adjustments to the official cash rate. The current rate has remained at a historic low since November 2020.
In line with its consistent stance over the past year, the RBA Board maintained the status quo and kept the rate steady at 0.1%, equivalent to 10 basis points. These decisions are communicated alongside comprehensive statements issued by RBA Governor Philip Lowe.
These statements are of substantial importance as they offer valuable insights into the reasoning behind the Board's verdict. Equally significant, they provide a glimpse into the Board's economic projections and offer indications as to when a potential rate increase could be considered.
Significant points of note in the December 2021 statement include:-
- Economy is recovering following the Delta variant outbreak setbacks which caused widespread and long lockdowns in several states.
- High vaccination rates as well as policy support are underpinning the economic recovery.
- Consumption in the household sector is showing a strong rebound.
- Improved outlook for business investment.
- Uncertainty exists around the severity of the Omicron variant but this is not anticipated to upset the recovery process.
- Expectation that the Australian economy will return to the path it was on prior to the emergence of Delta during first half ’22.
- Principal indicators are pointing to strong labour market recovery. Specifically the high job ad listings combined with the difficulties reported by some businesses in hiring workers.
- Wages growth has increased but only to the relatively pre-pandemic low levels. As the labour market continues to tighten, it is expected that a gradual pick-up in wages growth will ensue.
- Uncertainty around behaviour of wages due to historic low unemployment levels.
- Inflation as in the underlying rate is posted at 2.1% while the CPI rate is at 3% as a result primarily of high petrol prices and continued disruption in global supply chains. The underlying inflation rate is the key measure of interest for the RBA. The forecast is for that to achieve 2.5% in 2023.
- The target inflation rate in order to trigger a rate rise decision by the RBA remains sustained in the 2-3% scope.
- Financial settings continue to be highly accommodative, most borrowing interest rates remain at record low levels.
2022 Outlook
The RBA Board will next meet to consider both the cash rate and monetary policy in early February. Prior to that, the Federal Treasurer is due to provide a Budget Update on 16 December. Come February, a Federal Election will be on the cards, possibly with a date set. All events which may have an effect on inflation and flow onto interest rate decisions.
The Reserve Bank of Australia (RBA) has affirmed its dedication to maintaining the current highly accommodating monetary environment as a means to achieve its established goals of achieving full employment and maintaining inflation within the targeted range. The RBA notes that inflation pressures in Australia are comparatively lower than in numerous other nations. One contributing factor is the modest pace of wage growth observed within the country.
The Board has reiterated its pledge to refrain from raising the official cash rate until a sustained level of inflation within the range of 2-3% is achieved. The RBA Board has expressed its willingness to exercise patience in pursuing this objective.
Truck Loan Impacts
Lenders utilise the official cash rate as a reference point when determining their lending rates across various markets. However, their decision-making process also incorporates their own evaluations and analyses of economic indicators, as well as predictions on both domestic and international levels. Lenders with operations in foreign markets might encounter elevated funding costs due to interest rate escalations in those particular countries.
Specialist truck loan lenders, with which Jade Truck Loans is accredited, can be more flexible, negotiable and competitive in offering cheaper interest rate truck loans.
Securing a fixed truck & leasing interest rate truck loan as offered across our finance portfolio, ensures operators that their interest rate and loan repayments will remain constant over the full term of their truck loan. So securing a truck loan at the current historic low rates ensures your business will enjoy the benefits of that rate over the up to 7 years of the loan.
Contact Jade Truck Loans on 1300 000 003 to discuss low interest rate truck loans.
DISCLAIMER: THIS INFORMATION IS ISSUED PURELY FOR THE PURPOSE OF GENERAL INFORMATION PROVISION. IT IS NOT TO BE TAKEN AS THE ONLY SOURCE OF INFORMATION FOR BASING FINANCIAL DECISION-MAKING. THOSE REQUIRING FINANCIAL GUIDANCE AND ADVICE SHOULD CONSULT WITH THEIR FINANCIAL CONSULTANT OR ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY MISREPRESENTATION OF POLICIES, DATA OR ERRORS IN THIS CONTENT.
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