The Reserve Bank has cut interest rates – saving the average borrower $100 a month on mortgage repayments with the Big Four banks quickly announcing they will match the latest relief.
The cash rate has been eased by 25 basis points, taking it back to 3.85 per cent for the first time since June 2023.
Home borrowers have given relief for the second time this year, with both underlying and headline inflation now within the RBA’s two to three per cent target for the first time in four years.
‘Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,’ the RBA said on Tuesday.
Reserve Bank Governor Michele Bullock told reporters this was a ‘confident cut’.
‘Price increases have slowed and it’s fairly broadly based and this is very good news,’ she said.
‘I think it’s a confident cut in the sense that we think this is the right decision at this point in time.’
An owner-occupier borrower with an average $660,000 mortgage would save $107 on their monthly repayments with the latest rate cut, as typical variable home loan rates with the major banks fell under six per cent.
ANZ became the first of the Big Four banks to announce it would match the RBA’s latest rate cut with a 25 basis point cut to its variable rates.
This means its online-only rate is falling to 5.59 per cent on May 30.
Westpac followed seven minutes later, matching ANZ’s equally lowest online-only mortgage rate but from June 3.
The Commonwealth Bank matched its competitors shortly after, with borrowers getting relief on May 30.
NAB’s lowest online-only rate is falling to 5.94 per cent on May 30, but it’s available for borrowers with a small five per cent deposit.
Ms Bullock acknowledged the 13 rate rises in 2022 and 2023 were challenging for borrowers, who copped the most aggressive pace of monetary policy tightening since the late 1980s.
‘I know this period of relatively high interest rates has been and continues to be challenging for many households and businesses but it was essential that we brought inflation down,’ she said.
But she added Donald Trump’s tariffs were likely to bring down inflation, as cheap imports otherwise destined for the United States were dumped on .
‘We have made the judgement that global trade developments will overall be disinflationary for however there is a risk to inflation on the other side,’ she said.
‘The trade policies could lead to supply chain issues which could raise prices for some imports.’
Treasurer Jim Chalmers said the latest rate cut was welcome relief for families.
‘We are really pleased to see more help for hard working families with a mortgage,’ he said.
‘It reflects the substantial and sustained progress we’ve made together on inflation, and it recognises the uncertain global environment.’
Angus Sullivan, the Commonwealth Bank’s group executive for retail banking, said borrowers would have more money to spend.
‘Today’s decision will help to deliver some much-needed additional relief for many ns with a mortgage,’ he said.
‘When combined with the February rate cut this change should free up some more cash flow for homeowners who need it.
‘We know many have had tighter budgets in recent months and will welcome that additional flexibility.’
The Reserve Bank’s language has also softened towards inflation, with keeping unemployment low now its key priority.
‘The board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome,’ it said.
While headline inflation has fallen to 2.4 per cent, the Reserve Bank is expecting the consumer price index to climb to 3 per cent by the end of 2025, rising to 3.1 per cent in June 2026 after the federal government’s extended $75 quarterly electricity rebates end in December.
Unemployment was also forecast to rise from 4.1 per cent now to 4.3 per cent by Christmas.
‘The board’s strategy over quite some time has been to bring inflation down while avoiding a sharp rise in unemployment,’ Ms Bullock said.
Financial markets regarded a rate cut on Tuesday as a 96 per cent chance, and see the RBA cutting rates to 3.35 per cent by the end of this year.
That would imply two more rate cuts on top of Tuesday’s relief.
But KPMG chief economist Brendan Rynne said only one more rate cut was likely in 2025, given the uncertainty with headline inflation after the government’s $75 quarterly electricity rebates expired.
‘Despite some arguing that headline inflation is entrenched below the target band midpoint, it remains an uncertain measure until the government cost-of-living relief rebates/packages come to an end and enable a clear picture of headline inflation to reemerge,’ he said.
The Reserve Bank has so far delivered 50 basis points of rate cuts in 2025, providing relief in Febuary and May, after 13 increases in 2022 and 2023 took the cash rate to a 13-year high of 4.35 per cent.
Canstar data insights director Sally Tindall said borrowers could also use the two rate cuts this year to pay off their loan faster.
‘If you’ve managed to keep up with higher repayments through the rate hikes, consider keeping them the same,’ she said.
ANZ: 5.59 per cent for online-only variable rate for borrowers with a 20 per cent deposit from May 30
COMMONWEALTH BANK: 5.59 per cent for online-only variable rate for borrowers with a 40 per cent deposit from May 30
WESTPAC: 5.59 per cent for online-only variable rate for borrowers with a 30 per cent deposit from June 3
NAB: 5.94 per cent for online-only variable rate for borrowers with a five per cent deposit from May 30