The Reserve Bank of Australia (RBA) recently reduced the official cash rate (OCR) by 0.25%, bringing it down to 4.10%. This long-anticipated decision brings a collective sigh of relief for Australian borrowers who have endured the high cost of living in the midst of sticky inflation and interest rates rises for an extended period.
What impact will the rate cut actually have?
According to economists the 25 basis point reduction is unlikely to affect the Australian economy with any significance. However, it will increase household incomes by improving cash flow, which we expect could also boost consumer confidence overall.
Industry professionals also predict a conservative rate cutting schedule ahead, expecting the RBA to hold rates steady at its next two meetings before potentially announcing another cut later in the year pending the release of Q2 inflation data.
The cut was enough to get markets buzzing, with some already speculating on further rate cut reductions in 2025. However, RBA Governor Michele Bullock tempered expectations, clarifying that the decision to cut rates does not imply further reductions are a sure thing. “Three rate cuts this year is far too many,” she remarked. “We’ve eased a bit, but we are still in a restrictive stance, and we’ll only adjust further if we see more evidence of inflation returning to the target range.” You can read the RBA’s latest statement on monetary policy here.
The announcement was still met with optimism by both lenders and borrowers. Westpac’s CEO, Jason Yetton, said the rate cut was obviously welcome new for everyone, stating in tangible terms that a borrower with a $500,000 loan could now save more than $1,000 annually.
In addition to increasing available cash and borrowing capacity, NAB’s Adam Brown emphasized that the RBA’s decision signals confidence that inflation is under control and the economy is on a solid footing.
The evolving role of mortgage brokers
The lower interest rate environment will make mortgage brokers even more essential, according to Anja Pannek, CEO of the Mortgage & Finance Association of Australia (MFAA). “Brokers play a crucial role in helping clients navigate their options, whether it’s securing a first home loan, finding a better deal with their current lender, or refinancing a home loan,” she explained.
NAB’s Brown also highlighted the vital role brokers play, noting that the current market conditions only reinforce their importance in assisting home loan customers.
The rate cut benefits borrowers who are struggling with rising living costs, and it could also help others pay down their loans faster or increase their serviceability, opening doors for more Australians to achieve homeownership.
Click here to understand the benefits of using a mortgage broker instead of the bank.
Call one of Perth’s best mortgage brokers now to see what the rate cut could mean for your home loan or borrowing capacity.
Lingering market uncertainty
Despite the market’s enthusiasm, the RBA remains cautious in its outlook. The central bank pointed to ongoing challenges like slower-than-expected economic growth, inflationary pressures, employment concerns, and geopolitical risks, particularly in the U.S.
The RBA’s statement highlighted weak output growth, slow recovery in private domestic demand, and uncertainties regarding household spending trends. Wage pressures have eased more than expected, and housing cost inflation is beginning to slow. However, uncertainties remain, and the central projection suggests household consumption may increase as income growth rises. Still, risks exist, including the potential for a slower-than-expected recovery or stronger-than-expected labor market outcomes.
At the press conference, Bullock acknowledged the RBA board’s difficult decision to cut rates, noting the arguments on both sides. Ultimately, the board opted to slightly ease the restrictive stance, recognizing progress towards the inflation target but emphasized the need for more data to determine the future course of interest rates.
“The board is very alert to upside risks that could derail the deflationary process,” Bullock warned, underscoring the importance of taming inflation, as it affects everyone across the economy.
Big 4 Banks to pass on full rate cut
In the wake of the RBA’s decision, several lenders, including Australia’s Big Four banks – Westpac, ANZ, Commonwealth Bank, and NAB – announced they would pass on the full 0.25% rate cut to their variable-rate borrowers. These changes will take effect on different dates, with ANZ, Commonwealth Bank, and NAB implementing their interest rate cuts on February 28, while Westpac will follow suit on March 4.
Non-bank lender Bluestone Home Loans also announced it would immediately pass on the rate cut to all of its variable home loan customers.
If you’re unsure if your lender is applying the rate cut to your home loan, please book a 5 minute phone call today with one of Perths best mortgage broker. Similarly, if this means you’re keen to refinance to the most competitive rate you can find, please touch base with us to see what we can do for you.
Disclaimer: The information provided on this blog is for general informational purposes only and does not constitute financial or professional advice. While we strive to provide accurate and up-to-date information, mortgage laws and regulations can change, and individual circumstances may vary. We recommend consulting with a qualified financial advisor or mortgage broker to assess your specific situation and needs. Base Home Loans is not responsible for any actions taken based on the content of this blog. Always conduct your own research and consider seeking professional advice before making financial decisions.
