The Reserve Bank of Australia (RBA) has slashed interest rates.
The nation's central bank lowered the official cash rate (OCR) 25 basis points to 3.85%, down from 4.10% during its meeting Tuesday.
The recent reduction marks the second time the RBA has cut rates this year, this time driven by falling inflation and easing economic growth.
The nation's mean inflation rate fell to a three-year low in April and within the bank's target inflation range. The same month unemployment levels flatlined at 4.10%, perhaps the first signs of a once-tight labor market getting softer.
Also at play are the ongoing trade tensions stemming from the United States. After US President Donald Trump unveiled the Liberation Tariffs in April, tacking on a 10% import levy to all countries globally, including Australia, markets around the world crashed while recessionary fears simultaneously began to emerge.
Economists Down Under were quick to cite the escalating global uncertainty from tariffs as an additional reason for the RBA to lower interest rates. But news of a 90-day truce between China and the US the following month prompted some to rethink their forecasts. Either way a sense of uncertainty continues to linger.
"The Reserve Bank’s got a lot on [it's] plate at the moment," said David Koch, Compare the Market's economic director. "They’ve got to think about a tariff war, which seems to change on a daily basis, and the impact it will have on our economy."
For mortgage holders and investors nationwide, any interest rate reductions come as a relief. Many Australians were disappointed when the bank decided to hold rates during its April meeting on monetary policy. Even a small cut could shave thousands off annual repayments — a timely boost as households continue to grapple with soaring living costs.
Koch said a 25 basis point cut could save a mortgage holder with a $660,000 mortgage more than $1,200 each year.
“Aussies deserve it," he said. "A quarter percent down would make a huge difference to people’s home loans and meeting the cost-of-living crisis that’s going on at the moment."
Antony Waldron, chief executive officer of brokerage giant Mortgage Choice, added that the interest rate cuts are also encouraging for those entering the property market for the first time.
“The cash rate cut will provide a much-needed boost to borrowing capacity for hopeful buyers who stand to see their borrowing capacity rise," Waldron said.
Meanwhile, a number of lenders have cut their variable interest rates ahead of the RBA's announcement — nearly two dozen since the bank's April meeting. The moves highlight an increasingly competitive lending environment.
But a representative from Commonwealth Bank (CBA) said just 14% of eligible borrowers adjusted their mortgage repayments following February's cut. Moving forward, analysts and brokers alike are now anticipating more borrowers will look to free up cash flow in the form of refinancing.
"If rates fall further, it could deliver greater total savings to eligible home loan customers," said Michael Baumann, CBA's home buying executive general manager.
