RBA delivers first cash rate call for 2025: What investors need to know
Following weeks of speculation and constantly shifting forecasts, the Reserve Bank of Australia has handed down its first cash decision in 2025.
The Reserve Bank of Australia (RBA) has elected to cut Australia’s cash rate by 0.25 percentage points to 4.10 per cent, following a meeting of the board’s governors this week.
The announcement marks the first rate cut since November 2020, when the cash rate was slashed to a historic low of 0.10 per cent to stimulate the pandemic-impacted economy.
It’s also the first overall rate change since November 2023 when rates were raised to 4.35 per cent.
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According to Canstar, borrowers with a loan size of $600,000 will see a $92 drop in minimum monthly repayments.
Borrowers with a loan of $750,000 will see a $115 decrease, and a $1,000,000 loan will see repayments fall $154.
The move was widely expected by forecasters and economists nationwide, with Australia’s big four banks – ANZ, Commonwealth Bank, NAB and Westpac – all predicting that the RBA would cut the cash rate by 0.25 percentage points.
In Finder’s latest RBA Cash Rate Survey, almost three in four (73 per cent) of the 37 experts surveyed in Australia correctly predicted the cash rate cut in February.
Additionally 64 per cent of the survey’s respondents said they expect the momentum to carry on throughout the year, with another rate cut forecast in May of this year.
Finder’s head of consumer research, Graham Cooke, highlighted the “record number of households in financial distress” and said the RBA’s cash rate cut would be welcome news to mortgage holders nationwide.
Cooke emphasised that many Australians had delayed their home ownership plans due to persistently high interest rates, and said “many will be breathing a heavy sigh of relief” after the RBA’s decision.
“Many on the prowl, from first home buyers to upgraders, were sidelined as interest rates skyrocketed,” Cooke said.
“With interest rates finally going down, we could see renewed confidence among prospective home buyers.”
CEO of Laing+Simmons and president of the Real Estate Institute of Australia (REIA), Leanne Pilkington, said the move would ease affordability challenges for many Australians.
“The efforts to curb inflation appear to have worked and while the employment market remains strong, the cost of living – especially the cost of housing – means many Australians will welcome relief in the form of a rate cut,” Pilkington said.
REA Group senior economist, Eleanor Creagh, said that the fourth-quarter consumer price index (CPI) confirmed that inflation is moving lower, and added that “underlying inflation has reached its lowest level since December 2021” and is below the RBA’s forecast of 3.4 per cent.
“Although the unemployment rate remains low, the undershoot in inflation has allowed the Reserve Bank to begin its rate-cutting cycle today, with increased confidence that underlying inflation is on track to return sustainably to target,” Creagh remarked.
As a result of the RBA’s decision, Creagh said she expects buyer confidence and borrowing capacities to be boosted by the falling interest rates.
“The price falls seen over the past two months are likely to be short-lived and may reverse with the slight improvement to affordability and buyer confidence driving renewed demand and price growth,” she said.
Nevertheless, Creagh highlighted that housing affordability being at its worst level in three decades could see price uplift be “more muted compared to previous easing cycles” and result in the “pace of home price growth trailing the strong performance of recent years”.
LJ Hooker Group’s head of research, Mathew Tiller, shared that the previous “extended period of high interest rates has heavily and disproportionately affected mortgage householders” and described the cut as being “welcome news, particularly for families who have been feeling the pressure”.
Tiller stated that the RBA is tipped to announce another three rate cuts by the end of 2025, but shared he believes the central bank will act cautiously due to uncertainty around global economics, such as the US reciprocal trade tariffs.
While Tiller said that “it may take a little while for the banks to pass on the cut”, he said the rate cut “is likely to bring an increased activity with buyers looking to refinance or gain pre-approval”.
Looking at the current market, Tiller explained that “sales have been quite buoyant in recent weeks”, and added “today’s announcement should see the price stabilise earlier than expected and activity pick up”.
“With inflation easing and wage growth outpacing it, households will have more disposable income, making it easier to save for deposits and enter the market,” he said.
“Housing affordability and lack of supply will continue to be an issue in some areas, but we expect the lower end of the market will be busy with first-time home buyers and increased investor activity following this much-anticipated move by the RBA,” Tiller concluded.