Mortgage Holders Hopeful for RBA Rate Cut

Mortgage holders across Australia are keeping a close eye on the Reserve Bank’s first meeting of the year, hoping for the first interest rate cut in five years.

The RBA board will announce its decision at 2:30 PM tomorrow, after weeks of speculation from economists. Many predict a 25-basis-point cut, which would bring the cash rate down to 4.1%.

But not everyone is convinced. John Kehoe, economics editor at the Australian Financial Review, told Today this morning that he’s not entirely sold on the idea.

"It's a finely balanced call for the Reserve Bank tomorrow. The markets are saying there’s a 90% chance of a cut, but I’m more in the 60-40 camp,” he said.

Even if the RBA does decide to lower rates, Kehoe says it won’t be a game-changer for mortgage holders or the ongoing housing shortage.

"It might help a little bit with confidence and construction costs, but I don't think it’s going to make a big difference to home building in the short term."

Since November 2023, the official cash rate has been stuck at 4.35%, putting pressure on households and businesses. But with inflation easing, economists believe the RBA now has the space to provide some relief. Last month’s consumer price index data for the December quarter showed inflation dropping to 2.4%, with the RBA’s preferred underlying measure sitting at 3.2%—well within the target range.

If the RBA does cut rates, the next big question will be whether banks pass those savings on to mortgage holders.

Beyond household budgets, the RBA’s decision will also be closely watched by the federal government. With Prime Minister Anthony Albanese needing to call an election by May, a rate cut could bolster his government’s economic track record just in time for the campaign.

For now, mortgage holders are just hoping for some good news.