When operating a business, it's essential to have access to information and projections to effectively budget and strategize. Particularly, when considering investments in new vehicles through truck finance, having insights into potential future developments in interest rates becomes crucial for timing decisions.
With inflation and interest rates dominating the economic landscape and with the Reserve Bank of Australia appearing to call many of the shots re interest rates, it can be worth listening when they speak. The RBA Governor Philip Lowe delivered the annual CEDA address in Melbourne last week and provided insights and warnings on inflation, particularly focussing on the supply side.
Governor Lowe Speech – Key Points
Dr Lowe commenced his address by backgrounding the history of inflation in Australia over the past 50 years and how after a decade of inflation being a bit too low, the current high rate has come has a shock. Dr Lowe emphasised the importance of ensuring that the current period of high inflation was only temporary, describing it once again as the ‘scourge of inflation’.
The lessons from previous experiences of bringing down high inflation were outlined, especially the possibility of recession and how past experiences were behind the determination of central banks around the world to ensure this period was temporary. The forecast for inflation as included in the November Monetary Statement was repeated – expectation for 8% this year before declining to around 3% in 2024.
The RBA Governor then switched gears to discuss global economic changes in the longer term that were likely to have an impact on what he described as the ‘dynamics’ around inflation, RBA policy and the way in which businesses operated in Australia. Noting that for decades, controlling inflation focussed on the demand side with interest rate changes. The supply side however, is now looking more challenging that it had been. Dr Lowe said the supply side was likely to have a more important role in the controlling inflation.
Four specific factors were discussed which showed the importance of supply:- reversal of globalisation through trade arrangements etc; demographics and ageing populations; climate change; and the energy sector situation. Dr Lowe said that Australia needed to ensure its supply side was flexible.
In regard to Monetary Policy, Dr Lowe said the RBA had conducted a review of recent experiences during the pandemic and its approach for moving forward. One of the points of note was that the Board changed its approach during the pandemic period and provided a timing of when it saw rate rises would be necessary – 2024. When those rate rises came in 2022, Dr Lowe said that it appeared that the Board had not honoured its commitments. Moving forward, the Board is returning to its previous approach and avoiding communication that was too time specific
Information such as economic forecasts, uncertainties and the Board’s policy framework in making decision, would be provided by the RBA to enable individuals to form judgements on interest rate movements.
In closing, Dr Lowe said that further interest rate increases were expected. He said that the Board had not ruled out implementing 0.5% rises where necessary or keeping rates on hold for a period.
Key Take-outs for Business and Truck Finance
The media take on the address has been to describe the future as a see-saw for inflation and interest rates. A complicated and challenging prospect for business. While Dr Lowe’s address included detailed economic issues, there are some basic directions and insights for business owners and operators to note in regard to planning, budgeting and specifically when considering truck finance products:-
- Expectations that in coming years, the fluctuations in inflation would result in more swings in interest rates.
- No more specific timeframes from RBA may make it more difficult to plan ahead in regard to interest rates.
- The supply side is critical to inflation and Australia needed to do more in this regard.
- Inflation expected to be more erratic.
- Interest rates expected to fluctuate.
- RBA Board may decide on larger increases such as the 0.5% of earlier this year or leave the cash rate stable.
- Further rate rises are in the forecast with possibly further 0.5% increases or no increases.
The major point for anyone considering upgrading or replacing vehicles with truck finance is that rates are expected to go up in the coming period as will inflation. That means higher prices and increased costs. The key take-out for businesses from a recent address by RBA Governor Lowe on supply, inflation and rates, is the importance of securing cheaper truck finance interest rates. Finance which is individually sourced and negotiated to work with projected cash flow and business prospects moving forward. Finance which we focus on delivering for each customer.
The next key economic announcements with relevance for interest rates will be the monthly inflation figures which are due for release by the ABS this week and the next RBA rate decision on 6 December. As these factors can impact your financial planning, including Truck Refinancing decisions, staying informed and prepared becomes even more essential.
Contact Jade Truck Loans on 1300 000 003 for cheaper truck finance.
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.
