After years of hikes and heartbreak, the RBA is officially in its soft era, with another rate cut locked in. Today, the RBA has cut the cash rate by 0.25% to 3.85%.

Economists saw it coming with 88% of experts surveyed said we’d see another cut in May, and the big four banks were all nodding along too. In fact, NAB even anticipated a jumbo 0.50% rate cut (just off the mark there NAB economists!) 

After the big February trim and an April pause, it feels like the RBA’s getting is starting to get into a rhythm. One on, one off.

So why is the RBA still cutting?

Basically, inflation (which is how fast prices are rising) has been cooling off recently. One of the RBA’s favourite measures of inflation (called the “trimmed mean”) dropped to 2.7% in March, which is actually inside their target range of 2 to 3%... but still on the upper-end. That’s a big deal, because it means prices aren’t rising as quickly anymore and the worst of the cost-of-living crisis might be behind us.

At the same time, Aussies aren’t exactly splurging right now. Retail sales have been soft and consumer confidence is still shaky – people are feeling cautious, not cashed up. So cutting rates is one way to ease some of the pressure, especially for people with mortgages.

Also, we’re not the only ones making moves. The US, UK and Europe have all started cutting their interest rates too. The RBA doesn’t want to fall behind the global pack — but it’s also not in a rush.

What happens when the cash rate is cut?

If you’ve got a variable-rate home loan, this could knock a few hundred bucks a month off your repayments – eventually.

Banks tend to pass rate cuts on (slowly), and it usually takes a couple of months to feel the full effect.

Savers, sorry, you might see interest on your accounts slide again. It’s worth shopping around or parking cash in bonus saver accounts while you still can.

Where to from here?

If inflation keeps heading south and the labour market holds up, we could see another cut by winter. But don’t bank on a full-on rate-slashing spree – the RBA’s still moving cautiously.

For now, we’re back in cut territory… and it’s been a while.

Remind me, why are the rates so high?

As recently as May 2022, interest rates were at a historic low of 0.1% and economic conditions in Australia were pretty stable.

But with economic slowdown coming out of the pandemic, and  geo-political tensions globally, inflation has skyrocketed. The RBA has gone hardcore with thirteen cash rate increases in the past twenty two months. And now, the RBA is slowly but surely unwinding these rate hikes.