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The Reserve Bank of Australia (RBA) has reduced interest rates to their lowest level in two years due to slowing inflation but continues to caution about an unpredictable economic future.
After a two-day meeting of its monetary policy board, the central bank lowered the cash rate to 3.85 per cent on Tuesday. Treasurer Jim Chalmers described this as “welcome relief” for those with mortgages.
This decision follows the March quarter, where inflation was reported at 2.4 per cent, while the underlying inflation — favored by the RBA for excluding erratic elements — was recorded at 2.9 per cent.
This latter number falls right at the RBA’s inflation target range of 2-3 per cent.

The monetary policy board noted the considerable drop in inflation from its 2022 peak, yet warned that headline inflation may approach the top of the range next year as “temporary factors,” such as energy bill rebates, expire.

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.

Nevertheless, it assessed that “risks to inflation have become more balanced” and opted to lower rates since inflation is anticipated to hover around the target range.

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.

For mortgage holders, this means potential monthly savings of $91 for a $600,000 loan, $114 for a $750,000 loan, and around $152 for those with a $1 million loan.

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:
30 May: Commonwealth Bank, NAB, ANZ, Bankwest, Suncorp, People’s Choice Credit Union
3 June: Westpac, ING, RACQ Bank, Bank SA, Bank of Melbourne, St George

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.
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