Finally. After more than six months of will-they-won’t-they, on-again-off-again signs, the RBA has finally begun their interest rates cuts.
The Reserve Bank of Australia has announced that the cash rate will be cut by 0.25% to 4.10%.
And this is the first rate cut since November 2020 - back when WAP by Cardi B was all over the airwaves.
But this announcement was no major surprise for the majority of economists. In fact, Finder asked over 40 economists what they predicted - 73% predicted a cash rate cut. On top of that, all four of the major banks predicted a cash rate cut.
There were a few reasons for the rate cut… but mainly because it’s because it’s about damn time.
We’ve seen the US, UK and EU cut interest rates over the past 7 months - but the RBA has been waiting to see more consistent, downward trends in inflation data to ensure a ‘soft landing’.
Last month, we saw the annual trimmed mean (the preferred measure of inflation) fall to 3.2% over the year to December 2024. This was below economists’ forecasts of 3.3%. And many economists believe this was the final nail in the rate-cut-coffin.
All of the big four banks believe there will be more cash rate cuts this year, but they're spilt on how many cuts we'll see.
If the cash rate drops, it doesn’t necessarily mean that everyone’s mortgage repayments will automatically drop. That’s because the banks get to decide whether they want to pass on the rate cut to their customers
Assuming the banks do pass on all (or a portion) of the rate cut, experts say it takes around two or three months for individuals to feel the full impact of a rate rise on their cash flow. So we probably won’t feel the full impact of this cash rate cut until the middle of the year (or later).
The good news for homeowners is that it could cut the cost of your home loan. The bad news for savers is that it will likely cut the interest rate on your savings account too.
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