The Reserve Bank of Australia (RBA) has cut the official cash rate by 25 basis points, lowering it from 4.35% to 4.10%. This marks the first rate drop in four years and signals a shift in monetary policy after a prolonged period of stability.
The decision comes as inflation continues to decline. The Consumer Price Index (CPI) rose just 0.2% in the December quarter, bringing annual inflation down to 2.4%. While underlying inflation remains slightly above the RBA’s target at 3.2%, the central bank is confident that inflation is moving in the right direction.
RBA Governor Michele Bullock highlighted that previous rate hikes have successfully slowed economic activity and reduced inflationary pressure. However, the board remains cautious about future rate cuts, as economic growth and household spending remain uncertain.
How Does This Affect Borrowers?
This rate cut provides much-needed relief for homeowners and buyers. Many lenders have already confirmed they will pass on the full cut to variable-rate mortgage holders.
For existing borrowers, this means lower repayments and potential savings. For prospective buyers, reduced interest rates increase borrowing capacity, making it easier to enter the property market. However, with more buyers likely to take advantage of the lower rates, competition for homes may rise.
Will There Be More Rate Cuts?
Economists predict further rate cuts this year, though the pace will depend on inflation, economic growth, and consumer spending. Some forecasts suggest the cash rate could gradually fall below 4% by the end of 2025. However, the RBA will closely monitor financial conditions before making any further adjustments.
What This Means for You
If you have a mortgage, now is a great time to review your home loan and consider refinancing for a better rate. With increased competition among lenders, you may be able to secure lower repayments.
If you’re looking to buy, getting pre-approved now can help you stay ahead in a potentially more competitive market. Lower rates may encourage more buyers, driving up demand for properties.
Have questions about how this affects you? Reach out today to discuss your options and find the best solution for your financial goals!