The Reserve Bank of Australia (RBA) has made its first interest rate cut since 2020, reducing the cash rate from 4.35% to 4.1%, following 13 increases over a 15 month period. While this 0.25% decrease may seem small, it signals a major shift in Australia’s economic landscape, offering relief to borrowers and sparking discussions about further rate reductions in 2025.
A Turning Point for the Economy
After years of rising interest rates aimed at curbing inflation, the RBA’s decision reflects slowing wage growth, rising unemployment, and a steady decline in inflation. With inflation now tracking at less than 3% annually—close to the RBA’s target range—this cut marks the beginning of a potential easing cycle.
Benefits
- Homeowners and Borrowers: For mortgage holders, even a 0.25% cut can make a noticeable difference. A borrower with a $750,000 loan could see their minimum monthly repayment drop by approximately $120 if their bank passes on the cut in full. Those who continue making the same repayments as before could shave two years off their loan term and save nearly $75,000 in interest over time. Borrowers who previously found themselves stuck in “mortgage prison” due to high rates may now have a chance to refinance at more competitive rates.
- Investors: Lower interest rates tend to boost consumer confidence, stabilise property prices, and support stock market growth.
Drawbacks:
- Savers & Retirees: For savers, the news is less positive. 2 to 5 year term deposits paying close to 5 per cent interest per annum have disappeared, while the interest offered on savings accounts has also been declining. Savers and retirees relying on term deposits and interest income are therefore likely to see reduced returns.
What Should You Do?
With this recent economic shift, and the potential for further rate cuts, now is a great time to review your financial strategy. Whether it’s refinancing your mortgage, adjusting investment plans, or ensuring your savings work for you, seeking professional advice can help. For personalised guidance on how this rate cut affects your finances, log on to our website and book a meeting with one of our team.