In a move that marks the second interest rate cut of the year, the Reserve Bank of Australia (RBA) has reduced the official cash rate by 0.25 percentage points, bringing it down to 3.85%. The decision, handed down after the RBA’s May board meeting, reflects ongoing concerns about slowing economic growth and a desire to bring inflation sustainably within target.
This cut comes after signs that inflation is cooling, giving the RBA more room to maneuver as it attempts to support the economy without reigniting price pressures.
Why Did the RBA Cut the Rate?
According to RBA Governor Michele Bullock, the decision was influenced by a drop in the trimmed mean inflation, which has now slipped below 3%—a key milestone for the central bank. With inflation easing faster than many expected, the RBA sees this as an opportunity to give the economy some breathing room, particularly for households and businesses grappling with higher costs.
Despite positive trends, Bullock noted that risks remain, including global geopolitical tensions, fragile consumer confidence, and weak business investment. The rate cut is therefore part of a cautious but strategic shift toward more supportive monetary policy.
What Does It Mean for Mortgage Holders?
For homeowners with variable-rate mortgages, this rate cut could provide timely relief. Australia’s four major banks—CBA, NAB, Westpac, and ANZ—have already announced they will pass on the full 0.25 percentage point reduction to customers, starting later this month.
If you’re repaying a $600,000 loan over 25 years, the cut could reduce your monthly repayments by roughly $90–$100, depending on your lender. It’s a welcome change after the rapid rate rises of the past two years, which added hundreds of dollars to the average mortgage bill.
Is Now the Time to Refinance?
With rates coming down, it’s a smart time to review your mortgage. Many Australians stuck on older or less competitive rates could save thousands by refinancing to a better deal. Even a 0.25% difference in your interest rate can lead to significant savings over the life of a loan.
Financial experts also advise looking at offset accounts, redraw features, and flexibility around extra repayments when choosing a loan product—especially in a changing rate environment.
How Are Savers and Investors Affected?
Unfortunately, rate cuts tend to hurt savers. Term deposits and high-interest savings accounts may see reduced returns, which could prompt some savers to explore alternative options like dividend stocks or bonds.
For investors, lower interest rates often act as a tailwind. Property markets may see renewed buyer interest, and equities typically benefit from reduced borrowing costs and improved sentiment. However, markets remain cautious, with global volatility and domestic uncertainty still weighing on investment decisions.
What’s Next?
The big question now is: Will there be more rate cuts?
Economists from institutions like AMP and Westpac suggest this may not be the end of the RBA’s easing cycle. If inflation continues to ease and economic growth remains sluggish, further cuts could follow later in 2025. However, the RBA has made it clear it will proceed cautiously to avoid undoing progress made on inflation.
Final Thoughts
The May rate cut offers immediate relief for many Australians and is a clear signal that the RBA is shifting gears to support a fragile recovery. For mortgage holders, it’s a great time to reassess financial plans. For savers and investors, it may be time to think more strategically about where to place funds.
In an uncertain world, one thing is clear: being proactive about your financial decisions is more important than ever.