Reserve Bank cuts interest rates for the first time since 2020

The Reserve Bank of Australia today delivered its first interest rate cut in four years, slicing rates by 25 basis points to 4.1%.

The long-awaited move is welcome relief for mortgage holders and buyers after the most aggressive interest rate hikes on record, which saw the cash rate climb from a historic low of 0.1% to a 13-year high of 4.35% in 13 increases.

Today, the RBA Board announced inflation had fallen enough to commence a rate cutting cycle, but it signalled caution as “upside risks remain”.

“Some recent labour market data have been unexpectedly strong, suggesting that the labour market may be somewhat tighter than previously thought,” the Board says in its monetary policy decision statement.

“The central forecast for underlying inflation, which is based on the cash rate path implied by financial markets, has been revised up a little over 2026.

“So, while today’s policy decision recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing.”

CoreLogic Research Director Tim Lawless says the cut would provide modest relief to borrowers, with the average mortgage rate for owner-occupier loans to ease from 6.32% to 6.07% if passed on in full. A variable rate borrower with a $750,000 loan would see monthly repayments reduce by around $121 a month.

“Lower interest rates should help to stabilise values, but we aren’t expecting the early phase of rates cuts to be the catalyst for a new phase of material growth in housing values due to factors like stretched housing affordability,” Tim says.

“Arguably the greater effect on housing markets will be the confidence injection received from the commencement of the rate cutting cycle.”

MARQ Property Managing Director Craig Chapman says the RBA’s decision is a “step in the right direction” but consecutive cuts would be needed to have a significant impact.

“It’s a positive step in the right direction,” Craig says. “It will certainly raise more curiosity in property and it will obviously relieve homeowners from some of the cost of living pressures.

“We think inquiry is going to increase off the back of this curiosity, however, serviceability is still an issue in securing a loan and interest rates are still reasonably high.

“A buyer’s borrowing capacity has just increased $12,000 so it’s not going to make a massive material difference, but it could be the start of the next couple of cycles. The next couple of calls from the RBA will matter.”

Luton Properties Chief Executive Officer Nick Paine says the move would play out in improved buyer confidence and reprieve from cost-of-living pressures.

“As a result, we will see buyers with a little bit more confidence,” Nick says. “We were seeing that uptick at the start of this year in terms of our open home attendances, so it seems sentiment has already filtered into the buying pool.

“For someone with a $600,000 loan, it’s something like $92 a fortnight that they’ll save. It makes an impact, that’s for sure, but it’s not going to be world-changing.”

Ray White Canberra Sales Agent and Auctioneer Peter Walker expects the interest rate cut will lead to some investors selling their investment properties.

“I think it will have a two-fold effect,” Peter says. “One is that people will have increased borrowing capacity, but equally they’ll have more choices. I suspect more properties will become available for sale with sellers waiting for this interest rate drop to put their homes on the market.

“I suspect there’s a number of homeowners that have been poised to sell their properties, waiting for the interest rate drop, that will likely list their homes for sale.

“If you look at interest rates compared to what they were in COVID, they’re 150% higher. There was a perception in COVID that most people put their investments into property because it was considered a safer investment than debentures or the share market, but we’re not getting the yields.

“The biggest issue we have is that the ACT Government keeps putting up land taxes and rates and the yields are just not there for investors.”