Mortgages and some cost-of-living expenses are set to ease slightly, after a long-awaited interest rate cut.
“At its meeting today, the Board decided to lower the cash rate target by 25 basis points to 3.85 per cent,” an RBA statement reads.
The RBA decision today was based on moderating Inflation and an uncertain economic outlook.
“The Board judged that the risks to inflation have become more balanced. Inflation is in the target band and upside risks appear to have diminished as international developments are expected to weigh on the economy,” RBA states.
“With inflation expected to remain around target, the Board therefore judged that an easing in monetary policy at this meeting was appropriate.”
That easing is welcome news for mortgage holders.
“The average Aussie with a $660,000 home loan could save about $101 a month,” says Future PLC’s spokesperson Rachel Wastell. “For homeowners, it’s a bit of a waiting game, as lenders can take up to two weeks to make their move, and not all will pass it on in full.”
Xero economist Louise Southall says the interest rate cut was widely expected.
“Indeed, some banks are so confident they have started offering lower interest rates on some mortgages ahead of the official decision. The only debate seems to be if it is a 25bp or 50bp cut, with most financial market economists forecasting the former,” says Southall.
Economists’ perspective versus the market
Market expectations were in favour of a larger cut.
“As at the 19th of May, the ASX 30 Day Interbank Cash Rate Futures May 2025 contract was trading at 96, indicating a 51% expectation of an interest rate decrease to 3.60% at the next RBA Board meeting,” the RBA Rate Tracker states.
Solid growth in jobs and resilience in labour statistics have economists feeling somewhat positive about the economy, though it is noted that household spending is slowing down.
“Consumption data has stagnated recently (with household spending volume flat throughout 1Q25), which shows that households are still cautious, and the economic recovery will be rather slow,” says AMP economist My Bui.
Bui is anticipating a smaller cut to rates than the market predicts.
“This rate cut cycle will be shallow, given that the RBA expects the unemployment rate to stay around current levels and the labour market will still be operating “above capacity” over the next few years,” says Bui.
Today’s cut is due to a greater sense of certainty in the economy than was evident in the first quarter of the year, according to Southall.
“One area where uncertainty has since eased a little is around the inflation outlook, with the latest March quarter data broadly in line with RBA’s forecasts. This result is what has given the RBA room to lower rates again, following its first interest rate cut this cycle in February.”
The year ahead
As for what Australians can expect for the remainder of 2025, Xero’s economist says it will depend on the RBA forecast that will also be released today.
“Some areas of uncertainty remain, including the outlook for the domestic economy, labour markets, monetary policy lags and, of course, the international economy,” says Southall.
AMP has a more definitive view.
“We see three more rate cuts by early next year (including next month’s cut), which will take the cash rate to around 3.35%,” says Bui.
More to come
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