There could soon be relief for households with a mortgage, with economists predicting an interest rate cut when the Reserve Bank board meets in February.
The official cash rate has stayed at 4.35 per cent for more than a year.
If rates do fall, it will be for the first time since 2020.
So, what can you expect, when, and what could it mean for your home loan repayments?
When is the next RBA meeting?
The Reserve Bank board will meet on Monday, February 17, and Tuesday, February 18.
The board’s decision to cut, increase or keep the official cash rate unchanged will be announced shortly after the meeting concludes at 2:30pm AEDT on February 18.
Will rates be cut at the February meeting?
Many economists have brought forward their forecasts for a rate cut to February.
That includes economists from the big four banks, NAB, Westpac, CBA and Westpac, who are all predicting a cut of 25 basis points.
It follows recent data showing underlying inflation has moderated more quickly than the RBA expected, falling from 3.6 per cent to 3.2 per cent in the December quarter.
It’s now at its lowest annual rate since the final quarter of 2021, when the economy was recovering from the pandemic.
That has seen some economists who had expected a rate cut in May shift their forecasts forward to February.
The inflation data adds to evidence that cost-of-living pressures have peaked for Australian households.
On the other hand, we are seeing a stronger-than-expected labour market, which also influences the RBA’s decision.
Remind me again, what’s the current rate?
If the board does cut in February, it will be the first decrease in the cash rate since November 2020 during the COVID-19 pandemic (when rates hit the historical low of 0.1 per cent).
Rates began increasing in May 2022, going up 13 times over the next 15 months.
It has sat at its current level of 4.35 per cent for more than a year.
If economists are correct and there is a 25 basis point cut, the rate will be 4.1 per cent.
How much could home loan repayments fall?
If there is a rate cut in February and the banks pass it on in full, households with a mortgage will see a drop in minimum monthly repayments.
The following table is based on an owner-occupier paying principal and interest on the average variable rate of 6.33 per cent and 25 years remaining on the loan.
| Loan size | Repayments decrease |
|---|---|
| $600,000 | -$92 |
| $750,000 | -$115 |
| $1,000,000 | -$154 |
Source: Canstar
Further interest rate cuts would lead to more savings. For example, Canstar says two rate cuts would see monthly repayments fall by $229 on a $750,000 loan.
And if there are four rate cuts this year, a borrower with a $1 million loan could save $599 a month.
If you want to reduce your repayments in line with a reduction in interest rates, you should call your bank to make sure your payments are decreased to the new minimum.
A borrower with a $750,000 loan could save $115 on their monthly repayment if rates are cut in February, Canstar says. (ABC News: John Gunn)
When will the banks pass on any cuts?
While banks tend to follow official cash rate moves, they don’t have to.
However, you could expect any bank withholding rates relief from borrowers to come under intense pressure from customers and Canberra.
Ahead of the expected cuts, some fixed home loan rates have begun to fall (to lock customers in).
Canstar.com.au’s data insights director Sally Tindall says the cost of wholesale fixed funding has started to ease slightly.
“This, combined with a prospective cash rate cut, should push other banks into moving on fixed rates,” Ms Tindall says.
“While a few banks are now starting to sharpen their offerings, fixed rates still have a way to fall before they become fashionable again with borrowers.”
How many cuts will there be this year?
Obviously, no-one has a crystal ball when it comes to interest rates.
However, this is what the big four banks’ economics teams are predicting:
| Bank | How many cuts this cycle |
|---|---|
| CBA | 4 |
| ANZ | 2 |
| Westpac | 4 |
| NAB | 5 |
Source: Canstar
How many times will the RBA board meet this year?
The Reserve Bank board will meet eight times this year.
The outcome will be announced at 2:30pm AEDT after each meeting and governor Michele Bullock will hold a media conference to explain the decision.
Historically, the board met 11 times a year, but this changed in 2024 in order to spread monetary policy decisions across fewer meetings and allow the board to gather more information.
These are the dates the RBA will meet in 2025:
- February 17-18
- March 31-April 1
- May 19-20
- July 7-8
- August 11-12
- September 29-30
- November 3-4
- December 8-9
However, the RBA has indicated some of those dates may change, including November’s Melbourne Cup day meeting, so watch this space.