The Reserve Bank of Australia has cut interest rates for the third time this year, giving some relief to people with mortgages.
At its August meeting, the RBA lowered the cash rate by 25 basis points from 3.85 per cent to 3.60 per cent – the lowest level in two and a half years. The cut follows earlier moves in February and May, and comes after a surprise decision to hold rates in July.
“With underlying inflation continuing to decline back towards the midpoint of the 2–3 per cent range and labour market conditions easing slightly, as expected, the Board judged that a further easing of monetary policy was appropriate,” the RBA said.
“This takes the decline in the cash rate since the beginning of the year to 75 basis points.”
The RBA said it would keep watching the economy closely and could act again if needed, noting “heightened uncertainty” about demand and supply, and that it is “well placed to respond decisively to international developments” if needed.
KPMG chief economist Brendan Rynne said the cut was “better late than never” but might not be enough to lift spending.
“Today’s 0.25 per cent rate cut is a step in the right direction, but the question is whether it will be enough to turnaround the anaemic consumption and investment environment currently facing Australian households and businesses which is dragging down Australia’s economic growth potential,” he said.
“The simple answer is ‘probably not.’
“Core and headline inflation remain within the target band and appear stable, however while the international environment continues to hit by tariffs, consumer and business confidence remains low. Households and investors need ongoing rate relief to spur spending.”
BDO’s Anders Magnusson said the cut would “provide much-needed breathing room” but warned it could also push up house prices.
“Mortgage stress is now at its highest level since January, affecting more than one-quarter of borrowers,” he said. He also predicted at least one more rate cut this year.
Finder says a $500,000 mortgage holder could save $2884 a year if banks pass on the cut in full, while a $1 million loan could save $5768.
Tuesday’s decision matched market expectations, with 92 per cent of experts predicting the cut. It comes after quarterly inflation data showed CPI at 2.1 per cent, trimmed mean inflation at 2.7 per cent, and unemployment rising from 4.1 per cent to 4.3 per cent.
Canstar’s Sally Tindall said banks “should absolutely” pass on the full cut and that many lenders could soon offer rates under 5.25 per cent.
“In fact, if the majority of banks pass the cut on in full, which they should absolutely do, then there should be over 30 lenders offering at least one variable rate under 5.25 per cent,” she said.
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