‘Doing it tough’: Reasons RBA are torn on whether to cut rates — Finder expert Graham Cooke
OPINION: The RBA is about to announce its first cash rate decision of the year, and while many experts anticipate a cut, it’s not guaranteed. Here’s what you shouldn’t do if they cut.
Opinion — Head of consumer research at Finder Graham Cooke
The Reserve Bank of Australia will announce its first cash rate decision of the year next week, and while many experts anticipate a cut, it’s not guaranteed.
Headline inflation has fallen to 2.4 per cent, well within the RBA’s 2–3 per cent target range, leading most economists in Finder’s RBA Cash Rate Survey to predict a reduction, which would bring the cash rate down to 4.10 per cent.
AMP’s Shane Oliver believes inflation is declining faster than the RBA expected and that a cut would help support economic growth.
One of the strongest calls for a cut comes from Stephen Koukoulas of Market Economics, who not only expects the RBA to move in February but also forecast four more cuts this year. He argues that delaying rate cuts could put unnecessary strain on the labour market.
“Inflation is back within the target range and will stay there. If the RBA keeps policy too tight for too long, unemployment will rise unnecessarily. Cutting rates now would prevent that and keep the economy on track,” Koukoulas said.
If the RBA cuts rates by 0.25 percentage points, a mortgage holder with the average $640,000 loan could save over $100 per month, provided banks pass on the full reduction.
Those with larger mortgages, such as Sydney buyers, could see even greater savings.
Not Everyone Is Convinced
However, some experts argue that a rate cut may be premature. Finance expert and writer Noel Whittaker warned that inflation in the construction sector remains high, labour shortages are severe, and the job market is still strong — factors that could keep inflationary pressures in play.
“The RBA would rather wait another month than risk moving too soon,” Mr Whittaker said. “Right now, I don’t see how a rate cut can be justified, even though I have enormous sympathy for mortgage holders doing it tough.”
Others, like University of Sydney’s Stella Huangfu, believe the RBA will take a cautious approach and hold rates steady until there is stronger evidence that inflation will remain low.
Should You Fix Your Home Loan?
Even if the RBA does cut rates, experts warn homeowners against rushing to lock in a fixed-rate mortgage. Despite major lenders like NAB and Westpac lowering fixed rates, 87 per cent of economists surveyed said they wouldn’t recommend locking in a home loan at 4.99 per cent for three years.
Banks are already pricing in expected rate cuts, which is why fixed rates have been falling. Locking in now could mean missing out on further reductions if the RBA lowers rates multiple times throughout the year.
How to Make the Most of a Rate Cut
For mortgage holders, a rate cut could offer an opportunity to reduce long-term debt significantly — if used wisely.
While lower repayments free up extra cash, keeping your monthly repayments at their current level, rather than reducing them in line with the new interest rate, could shave years off your mortgage — especially with multiple cuts.
For example, if a homeowner with an average 30-year loan keeps their repayments at $3,983 per month instead of reducing them to $3,578 after four 0.25 percentage point cuts, they could pay off their mortgage six years earlier. This strategy could save tens of thousands of dollars in interest over the life of the loan.
Koukoulas argues that homeowners should plan for rates to keep falling. “Low inflation and weak growth mean a long-overdue rate cut,” he said. If more cuts follow, those who keep their repayments steady now will reap even greater long-term benefits.
What Happens Next?
If the RBA cuts rates next week, it could mark the start of an easing cycle. However, the RBA will be watching inflation closely — if price pressures pick up again, further cuts could be delayed.
For now, borrowers should review their home loans, compare rates, and consider negotiating a better deal with their lender. Whether rates fall next week or later in the year, staying proactive could save homeowners thousands of dollars over time — not just in the short term, but by paying off their home loan years ahead of schedule.
Read more on Graham Cooke and Finder’s rate analysis here.
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Originally published as ‘Doing it tough’: Reasons RBA are torn on whether to cut rates — Finder expert Graham Cooke
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