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The Reserve Bank has revealed its cash rate target at the third monetary policy board meeting of 2025.
The Reserve Bank of Australia (RBA) has announced its decision on the cash rate target, dropping rates for the second time this year – down from 4.10%, the new target is 3.85%, a reduction of 25 basis points.
Borrowers and mortgage holders are sure to be excited by the decision as it can save hundreds of dollars per month, providing lenders pass along the cut.
The cash rate cut will provide a much-needed boost to borrowing capacity for hopeful buyers who stand to see their borrowing capacity rise.
The decision to slash rates isn’t too surprising as in the lead up to the meeting, most in and around the industry predicted this outcome.
Recent data from the Australian Bureau of Statistics helped to cement this decision, such as the unemployment rate rising and trimmed mean inflation within the RBA’s target band.
The latest data from the ABS made a compelling case for a rate cut. The March quarter CPI Index revealed the annual inflation rate was within the RBA’s target range, and the Labour Force Survey showed the unemployment rate had edged up higher. The RBA Board would be acutely aware of the risk that global economic uncertainty presents to the nation’s outlook and a cut to the cash rate will help stimulate demand in our economy.
Looking ahead, if the February rate cut is anything to go by, lenders could start passing along the cut immediately.
In addition, there are still five more monetary policy board meetings to come in 2025. Experts are expecting further cuts throughout the year.
For first home buyers and investors, a lower rate environment may lift confidence. But affordability remains a challenge and much of it now hinges on government policies promised during the recent election campaign.
While the rate cut is welcome, wider challenges with housing affordability must be addressed.
The rate cut offers some relief for borrowers, but affordability remains a challenge and sustained affordability improvements will depend on further reductions in the cash rate over time. At the same time, population growth and a persistent undersupply of new housing continue to underpin prices.
Despite affordability constraints, we expect prices will keep lifting over the coming months, but the rate of growth is likely to be more modest compared to recent years.
While inflation is easing, uncertainty around the global and domestic outlook remains high. The RBA reiterated that policy is not on a pre-set path and future moves will depend on incoming data.
