How Soon Will the RBA Provide Relief for Homeowners?

Homeowners have been closely monitoring when the Reserve Bank of Australia (RBA) might reduce the cash rate. Since November 2023, it has remained unchanged at 4.35%.

Many had hoped for a cut following the recent decision by the US Federal Reserve to lower interest rates by 0.50%, with countries like New Zealand, Canada, and the UK also offering some relief to homeowners.

However, the RBA has maintained its stance on keeping monetary policy tight for the time being.

While a few economists believe a rate cut could still happen later this year, the majority suggest it’s more likely to occur in early 2025.

What’s the Current Situation with Inflation?

Inflation has been gradually decreasing, which is encouraging.

In August, Australia’s annual inflation rate dropped to 2.7%, the lowest level seen in three years, compared to July’s rate of 3.5%.

However, the RBA is waiting for a more consistent decrease before making any moves on the cash rate.

“The board needs to be confident that inflation is moving sustainably towards the [2-3%] target before any decisions are made about a reduction in interest rates,” stated RBA Governor Michele Bullock.

Predictions from Australia’s Big Four Banks

The Big Four banks all agree that the cash rate has peaked, though their forecasts vary on when the RBA might implement a cut.

• Commonwealth Bank – CBA remains hopeful for a 0.25% reduction in December 2024, having pushed back its earlier forecast from November due to recent strong employment figures.
• NAB – NAB has brought forward its expected timeline for a rate cut to February 2025, previously predicting it would happen in May. They anticipate a 0.25% cut to 4.1% in February, followed by one cut per quarter until the cash rate reaches 3.1% by early 2026.
• Westpac – Westpac foresees no change until February 2025, which would mark the beginning of four 0.25% cuts over the course of the year.
• ANZ – ANZ also expects the RBA to commence rate reductions in February 2025.

What Does This Mean for Homeowners?

Should lenders pass on a cash rate cut, mortgage holders on variable rates could see reductions in their monthly repayments.

To give an example, a 0.25% cut in the cash rate would lower repayments by about $92 per month on a $600,000 loan, bringing the monthly payment down to $3,907.

For a $750,000 mortgage, the monthly savings would be around $114.

Next Steps

With a potential rate cut in the next few months, now is a great time to review your mortgage and assess if it still meets your needs.

Speak to us at Broker Co, and we can help you understand whether refinancing might be beneficial in the current market. We can also advise on interest-saving options such as offset accounts or redraw facilities.

Get in touch with us today.