Despite some sectors advocating for interest rate hikes due to the escalation of housing prices, the Reserve Bank of Australia (RBA) has chosen to maintain the official cash rate unchanged during its June 2021 meeting. This decision was largely anticipated within financial and business circles, considering RBA Governor Philip Lowe's consistent affirmation that the bank envisions rates to remain at lower levels for an extended period.
Notably, this marked the inaugural rate determination session of the RBA Board following the release of the Federal Budget on May 11th. Moreover, it was the last such meeting before the conclusion of the 20/21 financial year, making it a pivotal point for many businesses potentially seeking this decision as a reference before proceeding with asset investments.
In the statement issued by the RBA on 1 June 2021, the Board announced its decision to maintain the policy settings with the cash rate at 0.1%. In the statement, Dr Lowe noted that the global economic recovery from the coronavirus pandemic was continuing and the outlook for the current and next year was for strong growth. Though, as stated previously, it was noted that this recovery was uneven with COVID-19 yet to be contained in some countries.
It was observed that inflation had remained subdued, falling short of central banks' intended targets. Nevertheless, there had been an upswing in global trade, with commodity prices largely elevated compared to the beginning of this year.
Regarding Australia's situation, he reiterated the unexpectedly robust economic rebound, with predictions of its continuation. The RBA anticipates a GDP growth rate of 4.75% in 2021 and 3.5% in 2022. However, the potential for virus outbreaks introduces an element of uncertainty. This uncertainty is expected to diminish as a greater portion of the population becomes vaccinated.
Unemployment has been earmarked as a key indicator of any rises in the cash rate by the RBA and in the June statement, it was mentioned that the unemployment rate was reducing faster than had been expected. The rate was 5.5% in April 2021 with a decline to 5% expected by later this year. It was especially noted that job vacancies were at high levels and labour shortages have been reported in some areas. An issue which no doubt many business owners are well aware of as they try to fill positions and ramp up production for their operation.
The RBA anticipates an upswing in currently subdued aspects of inflation and wage growth. However, this growth is projected to be gradual and moderate. The RBA had formerly established a target of 2-3% inflation as a potential trigger for a rate hike. In their latest statement, they predict an inflation rate of 1.5% in 2021 and 2% by mid-2023. This insight could provide businesses with a sense of the potential trajectory of interest rates in the upcoming years.
It's important not to conflate the general inflation rate with the Consumer Price Index (CPI) inflation figure. Due to the reversal of certain price reductions brought about by COVID-19, the CPI for the June quarter is projected to exhibit a temporary surge above 3%.
The housing market is addressed in the statement as well. The RBA mentions its intention to monitor trends in housing borrowing, given the context of escalating prices and the environment of low-interest rate lending. The overarching focus remains on supporting the economy's endeavor to achieve full employment.
In the concluding remarks, the statement unequivocally asserts that the RBA won't make the decision to raise the official cash rate until the goal of achieving 2-3% actual inflation is sustainably realized. This occurrence is unlikely to materialize before 2024. Read more here.
Impact on Truck Finance
For businesses looking to invest in new trucks and other equipment, the rate hold should be welcome news. Though not unexpected by lenders such as us, the current low-interest rates we are achieving for truck loans will be maintained at present.
For individuals holding existing finance contracts secured at a fixed interest rate, any alterations to the official cash rate will have no bearing on the loan arrangement, specifically in terms of repayments. Given that truck loan terms can stretch up to 7 years, strategic long-term planning is a conventional practice for both truck owners and operators.
For those contemplating investment in new trucks, the present juncture offers the chance to secure financing at the prevailing low-interest rates. This secures a fixed low rate and unchanging repayments throughout the entire predetermined tenure of the commercial heavy vehicle & truck loan.
Interest rates vary across the different loan types available for truck purchases. Refer to our truck finance interest rate comparison tool to see the current rates achievable across our loan portfolio. While interest rates are a major driver of the overall cost of a finance deal, the totality of the benefits of each finance facility to a business should be considered. A decision on which finance product is best suited to a specific business should be made in consultation with the business’ accountant, financial advisor or tax agent.
Contact 1300 000 003 to discuss a low-interest rate lending.
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