The Reserve Bank of Australia (RBA) has cut interest rates to a two-year low amid cooling inflation, though it continues to warn of an uncertain economic outlook.
The central bank cut the cash rate to 3.85 per cent on Tuesday following its two-day meeting of the monetary policy board — a move Treasurer Jim Chalmers said would be "welcome relief" for mortgage holders.
It comes after inflation came in at 2.4 per cent in the March quarter while underlying inflation — the RBA's preferred measure, which excludes volatile components — came in at 2.9 per cent.
The latter figure is at the top of the RBA's inflation target band of 2-3 per cent.
While acknowledging the substantial fall in inflation since its peak in 2022, the monetary policy board said headline inflation was likely to rise to the top of the band over the coming year as "temporary factors", like energy bill rebates, come to an end.
However, it did expect underlying inflation would moderate to around the midpoint of its target band over the forecast period — until July 2027.
It also warned of an uncertain economic outlook, pointing to, among other things, concerns over US tariffs, "pronounced" geopolitical uncertainties, and domestic economic activity.
Still, it determined that the "risks to inflation have become more balanced" and decided to cut rates given inflation is projected to remain around target.
How much will the rate cut save mortgage holders?
Those with a $500,000 loan would save around $76 a month if their lender passes on the rate cut, according to an analysis by financial comparison website Canstar.
Mortgage holders with a $600,000 loan would save $91 a month; those with a $750,000 loan would have $114 shaved off their monthly repayments; and those who've borrowed $1 million would save about $152 a month.
Which banks are passing on the latest interest rate cut?
Lenders will likely continue to make announcements over the coming days.
But so far, these banks and lenders have said they will pass on the quarter-point cut from:
23 May: Macquarie Bank
30 May: Commonwealth Bank, NAB, ANZ, Bankwest, Suncorp, People's Choice Credit Union
2 June: AMP
3 June: Westpac, ING, RACQ Bank, Bank SA, Bank of Melbourne, St George
5 June: Pepper Money
11 June: Homeloans
Online lenders Athena and Unloan have also passed on the cut immediately.
How far could interest rates fall?
The Commonwealth Bank expects the cash rate will fall by a further 0.50 percentage points — to 3.35 per cent — by the end of 2025
ANZ and Westpac also expects it will fall to 3.35 per cent, with the former predicting August and the latter by the end of the year.
Unlike the other big four banks, NAB had predicted a 0.50 per cent cut in May — a move that ultimately didn’t eventuate. It has yet to update its forecasts.
When will the RBA make its next interest rates decision?
The monetary policy board will next meet on 7-8 July.
