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4.9% Unemployment – what now for interest rates?

There has been a lot going on across the country in regard to COVID-19 lately with multiple states thrown into lockdown and in a major shock to many trucking businesses, NSW calling a 14-day halt in the construction sector. There is certainly plenty of facts, figures and press conferences to stay across to ensure you know what you can and can’t do, what support is available and still keep working on your business plans.

But for those that keep an eagle eye on the interest rate scene, you may have noticed a recent announcement that sparked additional attention – the recent unemployment figures of 4.9%. For those understandably preoccupied with other matters, we explain why 4.9% could be significant to the truck loan and other finances.

The announcement came at the same time as NSW was enduring an extended lockdown and other states had just emerged from snap lockdowns. So the Treasurer, Josh Frydenberg, while clearly pleased with the result, was obviously not overdoing the celebrations.

Rewind to this time last year and analysts, economists and even the Federal Government were predicting and preparing for skyrocketing unemployment figures in the 10+% range. But the Australian economy has defied the naysayers (go Team Australia!) and the figure has continued to drop over recent reporting periods. Why is this important? Because unemployment is linked to interest rates and interest rates are critical to truck loans and other business finance costs.

Interest Rates and Unemployment

The RBA sets the official cash rate which is, in the simplest terms, the interest rate for banks and lenders to source some of their funding. As part of their stimulus measures, the RBA Board cut the official cash right down to 0.1% during 2020, a historic low.

This rate forms the basis for lenders to set the interest rate they will charge on various loans. The RBA has several indicators which they closely watch when deciding whether or not to move on interest rates at their monthly board meetings.

Over the past few months, in the statement which accompanies each RBA interest rate decision, the Governor, Dr Philip Lowe, has repeatedly stated that the key indicators they are watching are inflation and unemployment. Looking for sustained inflation in the range of 2-3%, up from the current 1+% and unemployment below current levels.

More specifically in regard to unemployment, below 5%. And the current figure of 4.9%. The lowest unemployment level in over a decade for Australia and just edging below that magic 5. But will this sub 5% unemployment figure trigger an interest rate hike? Highly unlikely at the moment.

Some analysts suggest that the RBA is looking more to low 4s or sub 4% in regard to unemployment. Dr Lowe has repeatedly indicated that both inflation and unemployment need to be at sustainable levels before the Bank would consider a rate rise and has consistently suggested a 2024 timeframe.

Another aspect to take into consideration and one that was highly likely top of mind for Mr Frydenberg at the time of the recent figures being announced is what the impact of the extended Sydney lockdown will be on unemployment. Victoria is also now in a hard lockdown, which brings to around 12 million Australians current under COVID-19 restrictions and many businesses struggling. Judging by the queues at Centrelink offices across Sydney, it is highly possible that unemployment will rise as a result of the current circumstances.

The RBA Board is next due to meet to consider interest rates on Tuesday 3 August, just days after Greater Sydney is supposed to emerge from the current lockdown. These meetings are usually highly anticipated and the finance sector, including the Jade Truck Loans team, will await that early afternoon announcement with great interest.

Interest Rate Moves and Truck Loans

The great interest in interest rates broadly across the population is primarily due to the home mortgage market. In this market, loans can be set at variable rates and/or fixed rates which are actually fixed for only a few years of the entire loan period. This situation differs significantly from the heavy vehicle finance sector.

We provide fixed interest rate truck loans across our loan portfolio and these low rates are actually fixed/constant for the entire finance term. So any move in interest rates, even a small basis point, during a truck loan term, will not affect existing truck loans. So a truck loan arranged at the current rates will remain at that repayment level for the full term, which can be up to 7 years.

Our banks and lenders will of course be influenced by the official cash rate in setting their rates for truck finance. But global issues in sourcing their funding may also affect the local interest rate market.

Interest rates differ across lending types with Chattel Mortgage for Trucks offering the lowest rate. Refer to our Truck Finance Interest Rate Table to see what current rates we are achieving across our finance portfolio.

Fixed, cheap rate truck loans can be achieved for all types of business operators including sole traders, owner-operators, family businesses as well as SMEs and large operators. We also offer specialist services to ensure cheap truck loans for businesses that don’t have all the financial documents that many banks request – low docs and no docs truck loans, and for those with credit issues.

The unemployment figures may bounce around incoming reporting periods but hopefully will stabilise or better still continue on a downward trajectory following the recent COVID-19 outbreaks. The RBA is looking at 2024 before increasing the official cash rate as it does not expect sustained 2-3% inflation to be achieved until that time. In the meantime, our truck loan customers can enjoy cheap interest rates on new finance deals.

Contact 1300 000 003 for a quote on a truck loan.

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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