Today’s announcement by the Reserve Bank of Australia (RBA) to cut the official cash rate by 0.25 to 3.85% seems to have caught almost no one by surprise. Yesterday, 96% of economic forecasters in Australia predicted Reserve Bank Governor Michelle Bullock to announce the second rate cut of the year, and that’s exactly what’s happened.
It’s welcome news for home loan borrowers, and fingers crossed, this latest rate cut may not be the last. There are many economists who are predicting another two or three more rate cuts over the remainder of the calendar year.
In her statement, the RBA Governor said the Board had considered a 50 basis point rate cut before going with 25 basis points. US tariffs bring “a new set of challenges” to the Australian economy now that inflation is back under control. “Trade policies could lead to supply chain issues, which could raise prices for some imports, much like we saw in the pandemic,” she said. “We will need to be alert to upside risks. The board remains prepared to take further action if required.”
If it all sounds like mumbo jumbo economic speak, let’s get to the nuts and bolts, and to do that we’ll need a calculator.
The real impact of a rate cut (assuming it’s passed on in full by your lender) is what it translates to in reduced home loan repayments. For example, someone with an average mortgage of $660,000 over 30 years, a 0.25% rate cut will lower monthly repayments by about $100 a
month. If your home loan is $1,000,000, your monthly repayments will be lowered by about $150 a month (not sure it’ll do much to lower your blood pressure – that’s still a big home loan to manage).
The new rate of 3.85% is the lowest Australians have experienced in more than two years and is likely to push home prices, borrowing capacities and buyer confidence up.