Will this be the year mortgage borrowers finally get some interest rate relief?
That’s certainly what many are hoping, and most expecting including economists and financial markets.
After more than a year of the Reserve Bank of Australia (RBA) keeping its cash rate target on hold at 4.35 per cent, forecasts are for at least one 0.25 of a percentage point cut in 2025.
Here’s what you can expect, when, and what it could mean for your mortgage.
When is the RBA meeting in 2025?
The RBA board will be meeting eight times this year.
The first meeting of 2025 will be held on February 17-18.
The two-day board meeting will conclude with a policy announcement on the Tuesday at 2:30pm AEDT, followed by a press conference.
After that, the meetings are currently scheduled for the following dates, although the RBA has indicated some of those meeting dates may change:
- March 31-April 1
- May 19-20
- July 7-8
- August 11-12
- September 29-30
- November 3-4
- December 8-9
It’s the second year of the board’s reduced meeting schedule — it previously met 11 times annually.
While that gives fewer planned opportunities to move interest rates, it can hold emergency meetings and make out-of-cycle moves, as we saw during the COVID crisis.
But those were, of course, extraordinary times.
How soon are interest rate cuts expected?
As with all forecasts, it depends who you ask, but many economists have pencilled in May as the first interest rate cut.
That includes ANZ, NAB and Westpac economists, who are all expecting a 25-basis-point cut at the May meeting, which would take the cash rate to 4.1 per cent.
The Commonwealth Bank‘s economics team is sticking by its call that the first rate cut will come in February, but acknowledges there is doubt around it after stronger-than-expected data on the jobs market.
As for financial markets, an indicator of expectations calculated by the ASX puts the chance of a cash rate cut in February at 73 per cent.
What will rate cuts do to home loan repayments?
If the banks pass on interest rate cuts to their customers (can you imagine the backlash if they didn’t …), borrowers can elect to reduce their repayments.
According to comparison site RateCity, a borrower with a $500,000 home loan today would see their monthly repayments drop by $76, if the RBA cut the cash rate by 25 basis points in May.
That’s based on an owner-occupier making principal and interest repayments at the average existing variable rate of 6.33 per cent.
If there were two cuts, in May and in August, repayments would fall by $151 a month.
For a borrower with a $1 million home loan today, one cut would save them $153 a month, while two cuts would save them $303, RateCity says.
Prospective buyers and those looking to refinance may reap the benefits of increased borrowing capacity as interest rates come down.
What will influence the RBA’s rates decisions?
As governor Michele Bullock has emphasised, inflation is the main game for the RBA.
The December post-meeting statement read, “sustainably returning inflation to target within a reasonable time frame remains the Board’s highest priority.”
The following data on inflation will be released by the Australian Bureau of Statistics (ABS) before the RBA’s February meeting:
- January 8 — monthly consumer price indicator for November
- January 29 — quarterly consumer price index for December quarter, monthly indicator for December
The state of Australia’s jobs market is also considered important to the decision, as while economic growth has been slower, employment has remained resilient in the face of high interest rates.
The December labour force survey, to be released on January 16, has been described by CBA’s head of Australian economics Gareth Aird as “a key input into the February RBA Board decision”, after November’s unemployment rate unexpectedly fell to 3.9 per cent.
“The labour market will need to show signs of loosening in December for the RBA to feel that February is the appropriate month to commence normalising the cash rate,” he wrote.
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Domestically, the central bank will also be keeping a close eye on how households were spending over the holiday season.
The ABS will release multiple sets of retail trade data and the monthly household spending indicator before the February meeting, while reports from retailers may give a more up-to-date look at holiday trade.
And, of course, any developments overseas, particularly on the state of China’s economy and government stimulus there, and tariff threats from incoming US president Donald Trump, could weigh into the RBA’s thinking.
What have banks been doing with home loan rates?
Banks don’t need to wait for the RBA to move their home loan rates, of course, and many have already been doing so in anticipation of what’s to come.
According to RateCity, there were 29 cuts to variable home loan rates between October and mid-December last year.
By contrast, there were just seven hikes to variable rates.
When it comes to fixed home loans, banks appear keen to lock customers in, as they anticipate rate cuts ahead.
Over the three-month period, there were more than 40 cuts to one-, two- and three-year fixed rates.
