- Average borrower set to save $100 with next rate cut
Australians with an average mortgage are set to save $100 a month on their repayments following an expected interest rate cut next week.
Most economists are expecting the Reserve Bank of Australia to cut the cash rate by another 25 basis points, from 4.1 per cent now to 3.85 per cent, at its May 20 meeting.
Financial markets regard a quarter of a percentage point rate on Tuesday as a 95 per cent chance.
One rate cut would save the average borrower more than $100 a month but the big banks are forecasting three more rate cuts by the end of 2025 – leading to monthly savings of $400 by Christmas.
Carl Ang, a Singapore-based fixed-income analyst with MFS Investment Management, said Labor’s landslide re-election and Donald Trump‘s tariffs made another rate cut more likely next week.
‘Moreover, downside risks and uncertainty around Australia’s economic outlook have increased substantially, factoring in Liberation Day, global tariff movements since then as well as the Australian federal election,’ he said.
‘Overall, global developments likely increase the scope for a more tangibly dovish pivot from the RBA.’
An owner-occupier borrower with an average $660,000 mortgage would save $107 on their monthly repayments with one rate cut.
Australians with an average mortgage are set to save $100 a month on their repayments following an expected interest rate cut next week
In New South Wales, where the average mortgage is higher at $795,000, a borrower is set to save $128 a month as repayments fell to $4,762.
The Commonwealth Bank, Australia’s biggest home lender, is expecting the RBA to cut rates in May, August and November – taking the cash rate down to 3.35 per cent for the first time since March 2023.
For the average borrower with a $660,000 mortgage, this would mean monthly repayments would fall by $419 to $3,641.
Commonwealth Bank’s head of Australian economics Gareth Aird said the Reserve Bank had beaten inflation, with both headline and underlying measures now within the two to three per cent target.
‘We expected the RBA to commence normalising the cash rate in February with a 25 basis point rate cut, which was delivered, and we also forecast another,’ he said.
‘Our view is that the proverbial inflation dragon has been slayed.’
Mr Aird said that while the Reserve Bank didn’t discuss a rate cut in April, uncertainty sparked by Trump’s trade war would make them more inclined to keep cutting rates, as Australians benefited from cheaper Chinese goods.
The cost-of-living crisis is also easing with Australian workers now getting real wage increases, where pay levels are outpacing inflation.
Most economists are expecting the Reserve Bank of Australia to cut the cash rate by another 25 basis points, from 4.1 per cent now to 3.85 per cent, at its May 20 meeting (pictured is Reserve Bank of Australia Governor Michele Bullock)
Treasurer Jim Chalmers said that the strong wage and employment data showed Australia was on track for a soft landing – where the economy slows without falling into recession
Wages rose by 3.4 per cent in the year to March which was well above the headline inflation rate of 2.4 per cent – also known as the consumer price index.
This meant workers were getting a real wage increase of one per cent.
Treasurer Jim Chalmers said that the strong wage and employment data showed Australia was on track for a soft landing – where the economy slows to help manage inflation without falling into recession.
‘Real wages reflect the progress we’ve made together on wages but also the progress we’ve made together on inflation,’ he said.
‘We’ve got wages growing and we’ve got inflation falling and those are really the key elements of this soft landing that we have been engineering in our economy at a time of really substantial global economic uncertainty.’
