The Reserve Bank of Australia (RBA) is expected to announce a 25 basis point cut to the cash rate at 2.30pm AEST today, reducing it to 3.60 per cent. This move is anticipated following ongoing pressures from inflation. If banks fully pass on this reduction, homeowners with a $500,000 mortgage could see annual savings of approximately $2,884 compared to rates at the beginning of the year before previous cuts began.
Last month’s meeting surprised many when the RBA opted to maintain the cash rate at 3.85 per cent. However, economists argue that the board now has compelling reasons to lower the rates, particularly as the latest quarterly data indicates inflation has slid into the target range of 2 to 3 per cent. Headline inflation has recently dropped to 2.1 per cent, marking the lowest level in four years, while a cooling labour market has further intensified expectations for a rate cut.
Additionally, there is speculation regarding a potential larger cut, with markets suggesting a possible 50 basis point reduction could bring the cash rate down to 3.35 per cent. Despite these anticipated decreases in rates, new findings reveal that everyday living costs remain elevated for many Australians. A report by The Age indicates that households are responding by tightening their budgets, opting to forgo luxuries such as café coffees, entertainment, and holiday travel.
As the financial landscape continues to evolve, the interaction between interest rate adjustments and consumer behaviour remains a critical focus for both economists and homeowners alike.