Is the first rate cut since 2020 just days away?
For the first time in more than four years many homeowners with a mortgage will be awaiting a Reserve Bank Board monetary policy decision with a heightened sense of optimism.
Following the release of relatively positive quarterly inflation data last month, the consensus around the idea of a cut to the official cash rate at next week's board meeting appears to have strengthened.
Money markets, for one, are forecasting that there's a 95% chance that the cash rate will be reduced by 25 basis points to 4.10% on Tuesday.
Elsewhere, economists at all four major banks are also anticipating that rates will fall.
In an economic note published on Monday, Gareth Aird, the head of Australian economics at the Commonwealth Bank, suggested that he was reasonably confident that the Reserve Bank would begin reducing rates given last months' Consumer Price Index (CPI) results.
"The RBA's preferred underlying inflation measure, the trimmed mean CPI, rose by 0.5% per quarter. The annual rate stepped down from 3.6% to 3.2%.
"This was a touch below the market median forecast and, more materially, below the RBA's expectations from the November Statement on Monetary Policy.
"Both outcomes on the headline and trimmed mean CPI were in line with our forecast, which underpinned our view that the RBA would commence normalising the cash rate in February."
Are lenders likely to pass on a rate cut?
Ultimately, expectations don't always become reality though, so experts and borrowers alike will need to wait until 2:30pm next Tuesday afternoon for the Reserve Bank Board's decision.
If the RBA does cut the cash rate though - and it is passed on by lenders in turn - Australians with a home loan are likely to see a meaningful impact to their regular repayments.
For instance, someone with an average size mortgage balance of $641,416 would save $103 a month if their interest rate was reduced by 25 basis points, an analysis from comparison website Finder suggests.
But are lenders likely to pass on any cut that does emerge out of next week's RBA meeting? Graham Cooke, the head of consumer research at Finder, thinks that lenders will move.
"With previous cash rate drops we've seen that not all lenders have passed on those cuts in full. But this time around I feel that, because cost of living pressure has been so high for so long, there will be a lot of social pressure on lenders to pass any cut on in full.
"If we do get more cuts later in the year though, that's when we might start seeing lenders not necessarily passing them on in full."
When is the RBA meeting in 2025?
While all attention will be on the potential milestone of a first cash rate cut since late 2020, next week's board meeting also marks the one year anniversary (or thereabouts) since the central banks' new monetary policy meeting format was introduced.
Since February last year monetary policy meetings have taken place every five to seven weeks (eight times a year in total), rather than on the first Tuesday of each month (aside from January) as was the norm under the old format.
It's safe to say that opinions are mixed on the change though. In a survey of Money readers conducted in November, just 20% of respondents said that they preferred the new format.
On the other hand, 61% indicated that they found monetary policy meetings easier to follow when they were held on the first Tuesday of each month, while 18% didn't realise that there had been a change.
The new format seems to be here to stay though, which means that after next week's monetary policy meeting (held across February 17 and 18) the RBA Board will meet on the following dates:
- March 31 and April 1
- May 19 and 20
- July 7 and 8
- August 11 and 12
- September 29 and 30
- November 3 and 4
- December 8 and 9
For more information on the new meeting structure and how the central bank works more generally, check out our explainer on what the RBA does and how it affects interest rates.
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