The Reserve Bank of Australia (RBA) has ended five weeks of intense speculation, cutting interest rates and even hinting that more relief could be on the way.
Concluding its two-day meeting this afternoon, the RBA monetary policy board unanimously chose to reduce the official cash rate target by 25 basis points to 3.6 per cent, a level not seen since April 2023.
For the average Australian borrower with $600,000 remaining on their mortgage, today’s cut will see their minimum monthly repayments fall by around $89 – or less than $3 a day.
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While there had been some speculation that a larger-than-normal cut could have been passed on, RBA Governor Michele Bullock said a 35- or 50-basis-point reduction wasn’t even discussed by the board.
“There wasn’t a discussion of a larger rate cut,” she said.
“It was unanimous… and all board members were fully behind 25 basis points.”
And while Bullock played a straight bat to questions about where the official cash rate will end up once her bank has finished its cutting cycle, she did suggest there’s more relief still to come.
“We don’t have a point estimate for where we might end up,” she says.
“You’ll note that in the forecasts, we have inflation coming back down to target and the unemployment rate remaining where it is, with the assumption for a couple of more cash rate cuts in there.
“That’s the best sort of guess, but things can change.
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In its monetary statement, the RBA board said it was keenly aware of the impact of lower interest rates, but it remained steadfast in charting a course through an ever-changing world and domestic economy.
“This takes the decline in the cash rate since the beginning of the year to 75 basis points,” the board said.
“The board nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and potential supply.
“It noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia.”
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The board noted that Australia seemed to have largely avoided the worst of Donald Trump’s tariffs – but some businesses may be pausing investment until its clear how Australian exports will be affected.
“Uncertainty in the world economy 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 statement reads.
“Trade policy developments are nevertheless still expected to have an adverse effect on global economic activity, and there remains a risk that households and firms delay expenditure pending still greater clarity on the outlook.”
An overwhelming majority of economists – and more or less the entirety of market traders – had expected the RBA to cut interest rates today after a surprise pause in July.
Graham Cooke, head of consumer research at Finder, says the real pressure is now on the major banks to pass on rate cuts to struggling borrowers.
“Lenders are under immense pressure to pass the savings on to customers. So far, most have passed on the cuts in full,” he said.
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“Experts are forecasting more rate cuts, which could change things. Lenders might start to pull back and offer smaller cuts to customers, as we observed during the last round of cuts.
“In a competitive market, lenders are fighting for business, which is a good opportunity for you to review your home loan.”
Cooke said while today’s news will be welcomed by those with mortgages, renters are unlikely to see any windfall at all.
“Many landlords used rising mortgage costs as justification to raise rents, but as those costs fall they are unlikely to cut rents in response,” he said.
“The divide between renters and mortgage holders continues to widen. Those with a mortgage are now seeing relief, while lower-income renters continue to pay through the nose, making saving for a home even more difficult.”
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Ivan Colhoun, chief economist at CreditorWatch, said while it appeared the RBA was being “overly cautious”, today’s cut will nevertheless be welcomed by those struggling with repayments.
“The cut is very welcome news for both businesses and households with mortgages, as costs of living and doing business remain very high, while more generally, a less restrictive policy setting will be supportive for economic growth and ensure that any rise in the unemployment rate is minimised,” he said.
“One further interest rate reduction is likely in November this year, unless the unemployment rate begins to rise more quickly.”
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