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Are lending rates on the rise? RBA July 2021 statement raises questions

The RBA Board, Reserve Bank of Australia met on the first Tuesday in July as scheduled to make its monthly decision on interest rates. And while the announcement was as expected, some of the media headlines on the decision may lead to a level of confusion and concern for some people. Statements and commentary such as ‘RBA winding back support’ may seem like a reason to worry. Support for what? Support in what area? Will this affect my loan or borrowing plans?
These concerns around reduced support may have been intensified as a large percentage of the Australian population was under COVID-19 lockdown health orders at the time of the announcement. Not a time for worrying about a lack of support from authorities.

Our team has reviewed and analysed the RBA July statement and we provide our monthly overview of interest rates in light of the recent announcement to ensure the best possible scenario for your boat loan.

RBA Announcement: July 2021

The RBA Board made announcements or decisions in regard to three main areas at their 6 July 2021 meeting;

  • The official cash rate was held at the current historic low of 0.1% or 10 basis points and at 0% for exchange settlements which refers to lender funds exchanges.
  • The bond yield target was retained at the April 2024 level.
  • The program of purchasing Government bonds would continue into the middle of November which is beyond the previous September deadline BUT the amount of bonds purchase would be reduced.

This last decision, in regard to a reduction in the bond purchasing program, is the wind back of support which is being referred to by economic analysts in their post-decision commentary. And it is a positive not a negative sign for the Australian economy.

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Bond Buying Reduction

The program of buying Government bonds was introduced as part of the RBA’s monetary policy efforts to stimulate the economy at the start of the COVID-19 economic crisis in early 2020. The Bank purchases Government bonds as a way of injecting funds into the overall economy, keeping lending available and cheap and generally stimulating economic activity.

This is seen as emergency support and as the economy, in general, has improved at a much faster rate and is in a much better position than forecast, the RBA considers the timing is right to start a winding back that program. This is an indication that the RBA sees a positive outlook for the economy.

This program is not directly related to any form of Government support that may flow to both businesses and individuals that are currently impacted by the COVID-19 situation.

RBA Governor’s Statement

Most people will likely hear the RBA’s monthly interest rate decision via a news service or other media channels and the ‘take’ on the decision may be influenced by the views of the reporting service. For those that want a more in-depth and independent take, we direct you to read the statement issued by Philip Lowe, the RBA Governor, which always accompanies each Board decision. The statement is published on the RBA website and provides insights into how the Bank views both the current economic situation and the prospects for the mid and longer-term.

For those considering applying for any form of the loan including a boat loan or marine finance, it may be helpful to consider the RBA’s prospects and intentions moving forward.

In the July statement, the RBA stated that the measures the Board announced were required in order to continue to provide support to the overall economy. The economy is seen as in a transitional phase from the recovery from the effects of the coronavirus pandemic to a more expansion phase.

The Board reiterated its commitment to measures that would achieve its inflation target mark of 2-3% and full employment. These are the targets that the Board has previously indicated would be required before an increase in interest rates would be triggered.

While acknowledging the stronger recovery of the economy and the good balance sheet position of many businesses and households, the RBA noted the uncertainty that coronavirus outbreaks present. Mentioning that once past outbreaks had been successfully contained, the economy recovered quite swiftly.

Mention was also made of the labour market and the pleasing 5.1% unemployment figure but the elevated job vacancy situation. International border closures and the inability of overseas students and other workers to enter the country was noted in regard to labour shortages in some sectors.

Wages growth has been a hot topic in political circles and the RBA statement notes that this remains subdued. The Board does expect a pick-up in wage growth as well as inflation but that that growth would be gradual and modest.

In comments following the release of the statement and the meeting, Dr Lowe noted that the Board’s focus was still on 2-3% inflation and that an increase in interest rates would be related to inflation and not to specific growth in wages. But he noted that sustained wages growth was linked to sustained increases in inflation.

The hot housing market also received a mention in the statement and not surprisingly. Many commentators have been suggesting the RBA increase interest rates to slow the price rises and increase affordability. The RBA is keeping an eye on this trend and especially lenders maintaining lending standards.

Impact for Boat Loans

For our current and future boat loan customers, it’s worth mentioning that home mortgage interest rates do operate somewhat differently from lending rates for goods such as boats. As home mortgages are over much longer terms than boat loans and not fixed for the entire term of the mortgage, changes in interest rates down the track may impact home loan borrowers.

The same scenario does not exist for our Jade Boat Loans customers as our interest rates on boat loans are fixed for the entire loan term. The RBA is still talking 2024 before raising the official cash rate. So locking in a boat loan now at the current low rate will ensure you enjoy that cheap rate for the entirety of your up to 7 year boat loan term.
To get a better idea, feel free to use our online boat finance interest rate table to compare the rates from banks and lenders Australia wide.

The RBA Board’s next meeting will be on the first Tuesday in August and with Sydney experiencing an extended lockdown, the economic effects and flow-on through the national economy may be mentioned in that decision. Stay tuned to our regular articles for more information and updates on interest rates and other economic indicators.

Contact 1300 000 003 or online to discuss your marine lending requirements.

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 MISPRESENTED DATA AND DETAILS HEREIN.

 

 

 

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