Reserve Bank rate cuts tipped - what does it mean for your repayments?

Experts are predicting up to four interest rate cuts are on the cards over coming months, shaving $600 off the average Australian mortgage. See the calculator.

The first in a series of expected interest rate cuts could be just weeks away with experts taking the crystal ball and predicting rates could drop below 3 per cent by early next year, saving homeowners hundreds of dollars a month.

Most economists are predicting the Reserve Bank will cut the official cash rate by 25 basis points to 3.6 per cent when it meets on July 7-8, with most expecting at least one additional cut before the end of the year and potentially another at the beginning of 2026.

The future of US President Donald Trump’s controversial tariffs policy looms as the single factor that could determine how deep the Reserve Bank cuts, and ultimately, how much borrowers can expect to save on their home loan repayments.

AMP chief economist Shane Oliver had been expecting three more rate cuts by February, but following the release of weak growth figures last week, suggested a fourth cut could plunge the cash rate down to 2.85 per cent by early next year.

Assuming the banks pass on the cuts in full, that would reduce monthly repayments for the average borrower with a $650,000 mortgage by more than $400 a month, or more than $600 from the recent peak before the Reserve Bank made its first cut in February.

A borrower with a $1m loan would save more than $600 on their current repayments, while a borrower with a $400,000 loan would save close to $250.

Independent economist Saul Eslake said the rate and scale of interest rate cuts would largely depend on the outcome of President Trump’s tariffs plan.

Interest rates are set to keeping dropping.

“It really depends on whether you think Trump will succeed in blowing up the world economy. If he does succeed in blowing up the world economy through the combination of tariffs and ludicrous fiscal policy, and perhaps also by assaults on the independence of the Federal Reserve, then the cash rate could drop to 2 point something,” he said.

“So perhaps one (cut) in July or August, and possibly three more over the next nine months.

“But if Trump doesn’t blow up the world, or the world proves to be more resilient to whatever Trump succeeds in doing, then maybe there’s only two (cuts).”

More than four in five economists are predicting a rate cut of 25 basis points at the Reserve Bank’s meeting on July 8, but Mr Eslake said the central bank was likely to hold fire until after the next set of inflation figures is released on July 30.

It might also be tempted to keep its powder dry while it gets a clearer picture of the fallout from the Trump administration’s tariffs plan. The current pause on President Trump’s ‘reciprocal’ tariffs expires on July 9, a day after the Reserve Bank’s July meeting.

NAB is the only big four bank tipping a rate cut in July, with further cuts expected in August and November. CBA, ANZ and Westpac are all predicting just two cuts between now and February, with the first expected in August.

Economist Saul Eslake says the cash rate could fall below 3 per cent if Donald Trump’s tariffs “blow up the world economy”.

However more than four in five economists are predicting at least three interest rate cuts before the end of the year.

While borrowers can expect some relief over the coming months, Mr Eslake warned lower interest rates also meant higher house prices in the future.

“If Trump does succeed in blowing up the world, then it would be appropriate for there to be, and I would expect that there would be, a fiscal policy response as well,” he said.

“In other words, I think it would be wrong to leave monetary policy to carry most of the burden because one of the things we know results from big cuts in interest rates is big increases in house prices, and I don’t think we really want that.”

Mr Oliver said that with the RBA looking like it might cut interest rates faster than initially expected, home prices were likely to rise by around 5 or 6 per cent this year, up from earlier estimates of a 3 per cent rise.

Most economist are pencilling in a rate cut in July following sluggish growth figures released last week. Picture: NewsWire / Max Mason-Hubers

“Rate cuts are normally positive for home prices as it boosts how much buyers can borrow and hence pay for a property, although sometimes this can show up after a lag following several cuts depending on economic conditions,” he said.

“Roughly speaking, at present each 0.25 per cent cut in variable mortgage rates will add about $9000 to how much a buyer on average earnings can borrow.”

Originally published as Reserve Bank rate cuts tipped - what does it mean for your repayments?