Pop the champagne corks! Home loan repayments are set to reduce slightly after the RBA dropped the official cash rate to 4.10% today, delivering relief for Sydney mortgage holders.
The historic 0.25% cut was driven by compelling data, with headline inflation now at 2.4% annually.
Underlying inflation – a key RBA measure – dropped to 0.5% for the quarter and 3.2% annually, the lowest in three years.
This reduction will likely reduce the cost of borrowing by around $90-$150 a month, depending on the size and type of loan.
Following its first monetary policy meeting for 2025, the RBA said today that it had confidence that adjusting the rate down from 4.35% – where it had remained for over a year – was the best course of action.
‘Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,’ said the RBA today.
‘In the December quarter underlying inflation was 3.2%, which suggests inflationary pressures are easing a little more quickly than expected.
‘There has also been continued subdued growth in private demand and wage pressures have eased.
‘These factors give the Board more confidence that inflation is moving sustainably towards the midpoint of the 2–3% target range.’
Today marks the first such decrease in the RBA’s rate since late 2020 when pandemic-related measures were in place.
After 13 rate increases since mid-2022, the RBA’s decision today shows that the economy required a relaxation of monetary policy as inflation begins to slow (though the cost of living remains relatively high).
Federal Treasurer Jim Chalmers and the government will be celebrating, too, ahead of an upcoming election.
Chalmers has been vocal in saying that continued elevated rates are ‘smashing the economy’. A drop will no doubt feel like a vote winner.
However, interest rate cuts weaken the Australian dollar because Australia imports more than it exports. A lower currency value increases import costs which, in turn, exacerbates inflationary pressures.
‘While today’s policy decision recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing,’ added the RBA today.
‘In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook.’
Most industry experts are in consensus, believing that the rate will fall to around 3.35% with 2 or 3 more cuts widely forecast over the coming year.
Some lenders have even dropped their fixed-rate offerings in recent weeks. So, should you consider reviewing your current arrangements, reach out to Mortgage Broker Sydney.
Our friendly brokers can meet you wherever is most convenient: your home, office, or a local cafe.
In addition, we are here to guide you on various strategies such as uncovering lower rates, enhancing savings, consolidating debts, and alleviating the impact of rising household prices.
Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!