Today we saw a small win for Australia’s home loan mortgage holders as the RBA sliced 0.25% off the official cash rate.
As expected, Australia’s Central Bank brought down the rate from 4.35% to 4.10% following its first board meeting on monetary policy for 2025.
Borrowing costs are set to drop by around $90–$150 per month – depending on loan conditions and amount – with analysts forecasting more cuts to come.
The RBA believed that the time was finally right.
‘In the December quarter underlying inflation was 3.2%, which suggests inflationary pressures are easing a little more quickly than expected.
‘There has also been continued subdued growth in private demand and wage pressures have eased.
‘These factors give the Board more confidence that inflation is moving sustainably towards the midpoint of the 2–3% target range,’ noted the RBA.
So, Australia’s inflation rate continues to ease, with headline inflation rising just 0.2% in the December quarter and 2.4% annually.
Underlying inflation, a key measure for the RBA, dropped to 0.5% for the quarter and 3.2% annually, its lowest in three years, prompting many experts to bring forward their forecasts of a rate cut.
Westpac chief economist Luci Ellis (a former RBA assistant governor) wrote before today’s update that the RBA ‘will have the required confidence to start the rate-cutting phase in February.’
And so it has.
However, the central bank added a cooling note.
‘While today’s policy decision recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing.
‘If monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range.
‘In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook.’
Today’s news comes at a crucial time for the federal government ahead of an upcoming election.
Most voters with home loans will perceive a rate drop positively as the last RBA reduction was in November 2020, when Covid measures were in place.
That said, interest rate cuts can put downward pressure on the Aussie dollar. Since Australia is a net importer, a weaker currency drives up import costs, which adds to Australia’s inflationary pressures.
Sensing the change, Macquarie Bank reduced its fixed rates in January, with other banks and lenders following suit ahead of today’s big news.
If you would like to review your home loan arrangements, contact Mortgage Broker Group.
We can assist with tips on how to uncover lower rates, boost your savings, consolidate other debts, and take the pressure off increases in household prices.
Mortgage Broker Group operates nationwide, and our service is 100% free to you (although your lender may apply fees and charges).