RBA’s Second Interest Rate Cut: What It Means for Australians
The Reserve Bank of Australia (RBA) has reduced the official cash rate by another 25 basis points, bringing it down to 3.85 per cent—the lowest level seen in two years. This decision marks the second cut in 2023, as confirmed by RBA governor Michele Bullock, who described the move as a "consensus decision" made with confidence. While the board briefly contemplated holding rates steady or implementing a larger cut of 50 basis points, they ultimately decided that a moderate 25 basis point reduction was most appropriate for the current economic climate.
Bullock highlighted the recent decline in inflation, noting that it has "fallen substantially" from its peak in 2022. Data indicates that the annual headline inflation rate stabilised at 2.4 per cent as of March, with the RBA’s preferred underlying measure dipping to 2.9 per cent—well within the central bank’s target range of 2 to 3 per cent. Despite this positive trend, the RBA anticipates headline inflation may rise again in the coming year, potentially reaching the upper limit of their target band.
Acknowledging the complexities of the current economic landscape, Bullock expressed that the RBA is now navigating a "new set of challenges," exacerbated by global uncertainties following significant events, such as tariff announcements by the U.S. government. The RBA’s forecasts suggest that growth among Australia’s major trading partners is likely to slow down, even as domestic demand experiences a gradual increase.
According to analysts, the language used by the RBA suggests a readiness to consider further rate cuts, depending on evolving economic conditions. AMP Chief Economist Shane Elliott predicts the RBA may cut rates again in August, November, and February of the following year, with close to a 50 per cent chance of another reduction as soon as July. Meanwhile, Commonwealth Bank of Australia (CBA) economists foresee these further cuts happening sooner than expected, with possible reductions in both August and September.
For homeowners, the impact of the rate cut is immediate and beneficial—an average borrower with a home loan of approximately $659,920 can expect to save about $106 per month, assuming full pass-through from their bank. Cumulatively, after February’s cut, this could lead to a total saving of $213 per month, translating to annual savings of $2,553.
Major banks have swiftly reflected the RBA’s decision, with NAB confirming it would pass on the full rate cut to its mortgage holders, followed by Commonwealth Bank, Westpac, and ANZ. Canstar’s data insights director, Sally Tindall, indicated that most lenders will likely follow suit. However, she also warned consumers that they have the right to shop around for better mortgage offers if their current lender does not fully pass on the cuts.
Don Crellin, managing director of Resolve Finance, noted that the latest cut could enhance borrowing capacities, providing prospective buyers with additional financial flexibility. Every 25-basis point cut is estimated to increase borrowing capacity by around $10,000. Nevertheless, he advised caution, urging borrowers to remain disciplined and avoid overextending their finances simply because they can borrow more.
The RBA’s next policy meeting is slated for July 7 and 8, where further economic developments will continue to be assessed in light of both domestic and global factors affecting Australia’s financial landscape.
As millions look for ways to improve their financial security amidst rising mortgage stress, many are calling for further rate cuts to provide additional relief. A recent Yahoo Finance poll revealed that a significant majority (67 per cent) of respondents believe three more cuts would be necessary for financial comfort, with only a minority feeling secure with just two additional reductions.
In summary, as the RBA continues to navigate the complexities of the current economic environment, the impact of these interest rate cuts will resonate throughout the Australian economy, influencing everything from mortgage repayments to broader financial stability.
