Economists expect Reserve Bank will hand down second rate cut
A highly anticipated interest rate cut will slash $1200 a year off the average Australian household’s mortgage repayments. READ the full list of savings.
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A highly anticipated interest rate cut will save the average Australian household about $1200 a year off their mortgage repayments, with economists expecting one more before the end of the year.
Money markets have priced in a 95 per cent chance the Reserve Bank of Australia will slash the cash rate by 25 basis points to 3.85 per cent when the board meets on Tuesday.
For the average Australian mortgage of $660,000 this would reduce repayments by $100 a month, assuming a 25 year loan with a current standard variable interest rate of 6.01 per cent.
Combined with the rate cut delivered in February, and a widely expected third cut later this year, the average mortgage holder would be saving about $3,300 in repayments annually compared to what they were paying in January.
AMP deputy chief economist Diana Mousina said a third interest rate cut was likely to occur in August once the board has inflation data for the June quarter.
“We expect three or four cuts this year with the second being May, one in August and a chance of one in November depending on how the inflation and labour market data evolves,” she said.
Ms Mousina said the “quite strong” labour market data driven by strong jobs growth in the care sector would be closely watched by the RBA.
She said another factor would be if Donald Trump reinstated his “liberation day” level tariffs, though this appeared unlikely given progress the US President was making on “deals” with other countries during the 90-day pause on his plan.
“It’s hard to see tariff rates in the US going up to liberation day highs based on the concessions so far and US talks with China and others,” she said.
Independent economist Saul Eslake said he agreed with forecasts of a 25 basis cut in May, but he did not see the argument put forward by some experts that the bank should go bigger.
“I think the fear of Donald Trump blowing up the world economy (with tariffs) has receded for the time being,” he said.
“It make come back, but why would the RBA cut rates in anticipation of that … they’ll make decision based on the data, not speculation.”
Mr Eslake said he believed there was a “better than even chance” of a third rate cut in August, but he did not expect any more after that.
“A 25 point cut in August would take us to a 3.6 per cent (cash rate), which is getting pretty close to what the RBA considers ‘neutral’ which is 3 to 3.5 per cent,” he said.
Acting Prime Minister Richard Marles said he was not going to speculate about the RBA’s independent decision, but confirmed the government’s cost of living measures promised at the election would be delivered regardless of any rate cuts.
MONTHLY MORTGAGE REPAYMENT SAVING WITH 0.25% RATE CUT
$200,000: $31
$300,000: $46
$400,000: $61
$500,000: $76
$600,000: $91
$700,000: $106
$800,000: $121
$1m: $152
$1.5m: $228
$2m: $304
AVERAGE MORTGAGE PER STATE AND ESTIMATED MONTHLY SAVING
NSW - $811,000: $134
Victoria - $632,000: $96
Queensland - $635,000: $96
South Australia - $580,000: $88
Source: Moneysmart.com.au mortgage calculator. Assumes 25 year loan term, no fees and a standard variable interest rate fora principle and interest loan at 6.01 per cent before indicated cuts
Originally published as Economists expect Reserve Bank will hand down second rate cut
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