RBA Cuts Interest Rates: What It Means for You and the Economy
The Reserve Bank of Australia (RBA) has reduced the official cash rate to 3.85%, marking the second rate cut this year and the first time the rate has fallen below 4% since 2023. For mortgage holders and households feeling the pinch from higher living costs, this move will offer some welcome relief — but it also reflects growing concerns about the global economy.
Why Has the RBA Cut Rates Again?
This decision comes in response to a softer economic outlook both globally and here at home. Ongoing trade tensions, particularly those triggered by tariff announcements from the US, have created uncertainty that’s weighing on global business investment and consumer confidence.
The RBA has noted that these international developments are expected to slow economic growth, prompting some households to spend less and save more “just in case,” while businesses may delay major investment decisions.
Closer to home, inflation is now comfortably within the RBA’s target range of 2–3%. In fact, the RBA’s preferred measure of underlying inflation — the “trimmed mean” — has eased to 2.9%, the lowest in years. With inflation now broadly under control, the RBA has more room to lower rates without risking a price surge.
Economic Forecasts: What the RBA Expects
Despite the rate cut, the RBA remains cautious. The economy is still growing — but not as quickly as previously hoped. Here are some key points from the RBA’s updated forecasts:
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GDP growth is expected to reach 2.1% by the end of 2025, lower than earlier projections.
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Unemployment is still low, at around 4.1%, but may edge slightly higher in coming months.
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Government spending is helping support economic activity, with increased investment in areas like aged care, disability services, and infrastructure.
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Inflation is expected to stay near 2.6%, remaining within the RBA’s comfort zone for the foreseeable future.
What This Means for Borrowers
The rate cut is good news for mortgage holders. Most major banks have already announced they’ll be passing on the 0.25% cut to variable-rate home loan customers.
According to Canstar estimates:
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On a $500,000 mortgage, monthly repayments could fall by around $76.
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For a $1 million loan, repayments may reduce by approximately $114 per month.
This easing is a modest but meaningful step for many households who have faced significant increases in repayments over the past two years, following 13 rate hikes from mid-2022 to late 2023.
Will There Be More Rate Cuts?
Markets are currently pricing in at least two more cuts by the end of the year, potentially bringing the cash rate down to 3.35%. The RBA is likely to proceed cautiously, balancing the need to support economic growth with the risk of reigniting inflation.
Still, if global conditions worsen — for example, if US trade tensions escalate — further rate cuts could come faster or go deeper than currently expected.
For households, this latest move signals some breathing room after a period of aggressive rate hikes. But it also serves as a reminder of the fragile global environment Australia is navigating. While the RBA is confident inflation is under control, it remains alert to risks at home and abroad.
If you're a mortgage holder, it may be a good time to review your loan and budget to take advantage of lower rates. For investors and business owners, the broader economic picture suggests a period of cautious optimism — with an eye on international developments.
As always, if you’d like to discuss how this changing economic landscape might affect your financial plans, feel free to get in touch.