In a widely-expected move, the Reserve Bank of Australia (RBA) has cut interest rates.
The nation's central bank met Monday and Tuesday of this week to discuss monetary policy, deciding to knock 25 basis points off rates, bringing the official cash rate (OCR) down to 3.60%. The previous rate stood at 3.85%.
In a unanimous decision, the board cited moderating inflationary pressures and a tight labor market as the key drivers for its decision. In addition, while the board said global uncertainty remains elevated, "there is a little more clarity on the scope and scale of US tariffs and policy responses in other countries, suggesting that more extreme outcomes are likely to be avoided.
"The board nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and potential supply," continued the official statement from the board. "Monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia.
"The board will be attentive to the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand and the outlook for inflation and the labour market."
The RBA caught markets off guard during its July meeting, when it decided in a six to three vote to hold interest rates. The move disappointed mortgage holders and investors across the country, many of whom continue to feel the strain of rising living costs. Lower borrowing capacities also mean some would-be homeowners would likely be locked out of the property market, at least temporarily.
The RBA board signalled that lingering uncertainty – both domestically and globally – was the key reason for the pause. Governor Michele Bullock said the board needed more data before acting, stressing it’s not a matter of if but when monetary policy will be eased, with timing dependent on clearer signs that inflation and employment are under control.
Since then, the June quarterly consumer price index (CPI) confirmed that inflation continues to trend downward. Both headline CPI and trimmed mean inflation declined over the quarter, with annual CPI easing to 2.1%, down from 2.4% in the previous period, while trimmed mean inflation dipped to 2.7%, compared with 2.9% in the prior quarter.
In addition, the nation's unemployment rate, which edged up slightly to 4.2% in June, from 4.1% in May, remains historically low. The updated data lead all of Australia's Big Four banks – as well as multiple brokers – to anticipate a rate cut this month.
Australia's central bank previously cut rates in May and February of this year.
The RBA's next meeting is scheduled for 29-30 September.
Though widely anticipated, the move gives mortgage holders and investors across the country plenty of reasons to rejoice. Australia has been grappling with a cost-of-living crunch, a housing shortage and surging property prices. Lower rates ease the pressure on current homeowners and give first-time buyers a better shot at getting into the market.
Here what market players are saying.
"A lower rate will allow more people to access funds needed to purchase or refinance, and as [Australian Prudential Regulation Authority] is refusing to budge on the buffer rate, every reduction in the interest rate helps more people. We’d like to see relief for homeowners but as we saw with last month’s RBA decision, consensus from economists and markets won’t necessarily force a central bank's hand."
Anthony Waldron
Chief executive officer at Mortgage Choice
“The RBA’s decision to cut the official cash rate will be welcomed by borrowers and buyers around the country, following last month’s surprising decision to keep the cash rate on hold. The latest cash rate cut should boost the borrowing capacity of buyers hoping to enter the market this spring. Buyers hoping to succeed in a hot market should get expert advice early on.
“If lenders pass on the 25-basis-point cut in full to a 6.01% interest rate, on a $600,000 loan balance, it will mean a saving of nearly $100 a month."
Eleanor Creagh
Senior economist at REA Group
“The reduction will provide some relief to borrowers through lower mortgage repayments. Further declines in interest rates are set to bolster both buyer confidence and borrowing capacity, supporting housing demand and price growth.
“While affordability remains severely constrained, the underlying market pressure of persistent housing undersupply relative to population growth remains in place. We expect home prices to continue rising in the months ahead, albeit at a more moderate pace than seen in previous easing cycles. With interest rates moving lower this year, momentum in the housing market has strengthened, marking a turnaround from the slower conditions observed in late 2024. Renewed buyer sentiment, supported by earlier rate cuts and the prospect of further reductions, is underpinning this recovery.”
Simon Bednar
Chief executive officer at Finsure
"Regardless of the rate announcement, spring is nearly upon us, which means the property market is likely to get a strong boost. While some lenders have moved already in anticipation, other lenders may choose to hold on a little longer before dropping their rates and claim back some income from a higher net interest margin. As a result, mortgage brokers have an opportunity to help clients navigate the various lender responses and reaffirm their position as a trusted financial partner.”
Mark Haron
Executive director at Connective
"Today’s rate cut was well timed. The RBA had clear scope to ease pressure on households with inflation softening and economic growth subdued. It is not a silver bullet, but it provides borrowers with financial and psychological relief, and keeps brokers central to the conversation.
“We are already seeing signs of momentum building. Pre-approval applications rose 13% in the second quarter of this year, compared with the same period last year, with loan volumes up 23%. That disconnect reflects two things: rising property prices and improved borrowing capacity as lenders began easing rates. If inflation and economic growth continue on their current path, there is certainly room for one or two more cuts this year.”
Barry Saoud
General manager, mortgages and commercial lending at non-bank lender Pepper Money
"With inflation now sitting comfortably within the RBA’s target range, today’s rate cut to 3.60% marks a clear shift toward more supportive monetary conditions. This is welcomed news for the housing market. Lower rates are expected to boost borrowing capacity, lift buyer sentiment and re-energise demand. In the non-bank space, certainty fuels confidence, and confidence creates momentum. We’re already seeing further improvement in borrower appetite to buy, refinance or invest. A stable and easing rate environment helps us deliver really helpful loan options with speed and certainty, backing real-life goals with real-life solutions."
Andrew Winter
Property expert at Compare the Market
"Homeowners celebrating today’s rate cut decision don’t only stand to benefit from cheaper repayments, but could also rake in thousands of dollars in home equity if lower rates boost property prices. Today’s 0.25% reduction will translate to $105 in monthly repayment savings, or more than $1200 a year, for borrowers with an average loan of $660,000, assuming banks pass on the discount. [In addition], cheaper rates, improved buyer confidence, and ongoing supply issues could further inflate property values in parts of the country."
Anja Pannek
Chief executive officer at the Mortgage & Finance Association of Australia (MFAA)
“This decision will no doubt be welcomed by our members and their clients across the country. With mortgage repayments making up the largest financial commitment for many households, our members would expect lenders to deliver the full benefit of any rate reduction to their clients. This latest cut will lift borrowing capacity and improve mortgage serviceability. It will encourage more Australians – whether first home buyers, investors or refinancers – to contact an MFAA accredited broker and discuss how they can get on the property ladder or get a better mortgage deal.”
