Borrowers to save $1200 a year following cash rate cut

In a move that is likely to trigger further relief for Australian homeowners with a mortgage, the Reserve Bank Board cut interest rates by 25 basis points at its monetary policy meeting this afternoon.

The reduction means that the official cash rate is now 3.60% - 75 basis points below where it started the year.

Last month, the RBA Board surprised many observers when it defied market expectations and kept rates steady, noting at the time that it was content to wait for more information to confirm that inflation was tracking towards the midpoint of its 2-3% target range.

And it appears that the quarterly CPI data released a fortnight ago - which showed drops in headline and underlying inflation - met that information need, as the Board was unanimous in its decision to cut rates this afternoon.

In a statement put out after today's meeting, the Board emphasised that while inflation is easing, it will continue to maintain a cautious approach.

"With underlying inflation continuing to decline back towards the midpoint of the 2-3% range and labour market conditions easing slightly, as expected, the Board judged that a further easing of monetary policy was appropriate.

"The Board nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and potential supply."

What will the RBA cut mean for home loans?

After last month's decision to hold rates, it's fair to assume that today's cut will be welcomed by at least one group: mortgage-holders. Assuming that banks and lenders pass on the cut in full, that is.

For a borrower on a typical variable rate of 5.80% with an average $660,000 loan which is being paid off over 30 years, a 25-basis-point rate reduction would see their monthly repayments drop by $105.

Mortgage-holders have been warned not to be complacent though - even if they do receive a rate reduction from their lender in the days or weeks to come.

"In a competitive market, lenders are fighting for business, which is a good opportunity for you to review your home loan," says Graham Cooke, head of consumer research at Finder.

"If your current mortgage rate is higher than 5.50%, you may be able to find a better deal."

A handful of lenders have even started offering home loan rates starting with a '4' for borrowers willing to lock in for a few years on a fixed rate.

Among those are larger banks like Bank of Queensland, Macquarie Bank and ME Bank, plus customer-owned institutions like Greater Bank and People's Choice.

Major banks pencil in further reductions   

It's possible that home loan rates have even further to fall though. That is, if the cash rate continues to head south.

At present, that's what economists at Australia's four largest banks are anticipating.

In the lead up to today's decision, experts at ANZ, the Commonwealth Bank, NAB and Westpac had all pencilled in the RBA's November monetary policy meeting as the most likely timing for another 25bp cut.

The thinking differs beyond November though. ANZ, for one, is forecasting that interest rates will remain at 3.35% for an extended period.

Westpac, meanwhile, expects cuts in both February and May 2026 which - combined with a November reduction - would bring the cash rate down to 2.85%.

In the meantime, the Board will meet again in seven weeks when it will deliver its next monetary policy decision on September 30.

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