Get ready for a mega rate cut: RBA boss gives hope to millions of borrowers - but it's not all good news
Australian home borrowers can look forward to a super-sized interest rate cut as the Reserve Bank admits it is alert to the possibility of a recession.
The Reserve Bank on Tuesday cut interest rates by 25 basis points, taking the cash rate back to 3.85 per cent for the first time since June 2023.
This also marked the second cut for 2025, with inflation now back within the RBA's two to three per cent target for the first time in four years.
But Reserve Bank Governor Michele Bullock said a bigger 50 basis point cut was considered on Tuesday, which would have saved an average borrower $200 on monthly repayments.
'First of all, it was a consensus decision. What the board discussed was two options: hold or lower,' she told reporters in Sydney.
'There was a bit of a discussion about hold and that was, sort of, put aside pretty quickly.
'The discussion then was about a cut and how big and there was a discussion about 50 and 25.'
Borrowers haven't had a 50 basis point rate cut since May 2012, following the end of the mining boom, with the RBA easing rates by smaller amounts during Covid in 2020.
Another 50 basis point rate cut, on top of Tuesday's relief, would save a borrower with an average $660,000 mortgage another $209 on their monthly repayments.
The RBA's latest rate cut will see standard variable rates among the Big Four banks fall under six per cent.
A half a percentage point cut at the Reserve Bank's next meeting in July would see the cash rate fall to 3.35 per cent for the first time since March 2023, and see online-only mortgage rate fall close to the 5 per cent level.
But Ms Bullock also had some not so welcome news for Aussies.
She said the RBA monetary policy board was worried about the prospect of a recession in the next two years, as Donald Trump's tariffs hurt global growth and caused Australia's economy to shrink for two consecutive quarters.
'If you look at our scenario analysis, it does suggest that in a really bad outcome, there could possibly be a recession, yes, but that's in the very extreme circumstance,' she said.
'At the moment, we're not looking at that, we need to be alert.'
The Reserve Bank is expecting sluggish economic growth to continue until at least mid-2027.
Australia's economy was only expected to grow by 1.8 per cent during 2024-25,
The 2.2 per cent growth pace forecast for 2027 is still well below the long-run, three-decade average of 3 per cent.
The futures market is expecting the RBA cash rate to fall to 3.1 per cent by the end of 2025, for the first time since February 2023, which would imply another 75 basis points of relief from the Reserve Bank.
More rate cuts are likely to see another boom in house prices, with immigration still at high levels.
But Ms Bullock said the effect of rate cuts on house prices wasn't her chief concern, even though it will lock more young people out of the housing market.
'I understand that people are really concerned about housing prices,' she said.
'Our focus has to be on inflation and if the right thing to do in terms of employment and inflation is to lower interest rates, I think we have to accept what that might imply for housing prices because, as I said earlier, the issue for housing is supply, demand and if we start thinking about – 'Well, do we lower interest rates because of housing prices?' – we're going to take our eye off the ball which is inflation and employment and I don't think that would be the right thing to do.'
The RBA chief said housing supply wasn't her key responsibility.
'So, I acknowledge some people are worried that as interest rates come down, housing prices will rise but other policies have really got to step up here and address what is a housing shortage,' she said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
2 hours ago
- The Independent
Boeing 787 Dreamliner: a passenger and airline favourite, with some nightmares along the way
The Boeing 787 Dreamliner was the first truly 21st-century big jet. More than 1,000 are in service, and many passengers rate it more highly than other aircraft. The carbon-fibre twin-engined 787 was designed partly as a replacement for Boeing's veteran 767 – but also to introduce passenger-friendly benefits such as larger windows and higher cabin pressure. The Dreamliner was also accountant friendly, burning about one-fifth less fuel than the 767, and allowed airlines' network planners to dream of ultra-long routes. The daily Qantas nonstop between London Heathrow and Perth in Western Australia, covering over 9,000 miles, is a doddle for a suitably configured 787. Boeing's bet was that an efficient aircraft with plenty of range would enable plenty of previously unserved city pairs to be flown profitably. The wager at arch-rival Airbus was different: think big. Going one step beyond the 747 Jumbo jet by extending the double deck for the length of the aircraft. The European engineers came up with world's largest people-mover: the Airbus A380 'SuperJumbo'. Both the 787 and A380 endured long and troubled gestations, but the Airbus plane was first in service – beating the 787 by a couple of years. To the chagrin of the Toulouse-based planemaker, few airlines were impressed. It was a 20th-century concept, with four thirsty engines to nourish and maintain. Only Emirates has ordered the Airbus A380 at scale, to feed its mega-hub in Dubai. In contrast the 787 has been a plane for all seasons. Europe's biggest holiday company, Tui, has 13 of the jets. They can shuttle hundreds of holidaymakers efficiently between the UK and the Mediterranean in summer, then in winter show off their long legs to the Caribbean and South East Asia. Premier league airlines configure the Dreamliner for comfort: British Airways has a total of 42 in service and on order, while Virgin Atlantic has 17 – with names like Dream Girl and Dream Jeannie. But the choice of engines that both the UK carriers chose have proved something of a nightmare. The Rolls-Royce Trent 1000 engine, 'optimised specifically to power the Boeing 787 Dreamliner family' has been unkindly described by aircraft engineers as having 'chocolate fan blades'. A shortage of serviceable aircraft caused both BA and Virgin to cancel routes to Kuala Lumpur and Accra respectively. Yet at least the 787 is now flying at scale. For three months in 2013, the young plane was grounded worldwide because of fears of conflagration involving the lithium batteries that were installed: a newly arrived Ethiopian Airlines Dreamliner from Addis Ababa burst into flames at Heathrow. No one was hurt, but the plane was banned from flying until Boeing came up with a fix. More recently, safety shortcomings at the US manufacturer have come under the spotlight. And the first fatal crash of the 787 on Thursday 12 June, killing hundreds in Ahmedabad, will sharply increase the focus on the plane's airworthiness. Investigators sifting through the wreckage of the Air India jet will pore over the components that are still intact after the impact and subsequent fire to see if some kind of systems failure had contributed to the disaster. Were a previously unidentified design flaw to be identified, resulting in another worldwide grounding order, global aviation would be traumatised: already the number of active long-haul aircraft are struggling to meet demand, and removing more than 1,000 wide-bodied planes would wreck millions of travel plans. Meanwhile, the Boeing 787 Dreamliner is approaching middle age on the aircraft spectrum – and the younger Airbus A350 has stolen its most-preferred title. Between London and Doha, Qatar Airways consigns its first-edition 787s to the Gatwick budget route, rather that the pricier premium Heathrow link. These tired-looking high-density aircraft are also deployed on low-revenue routes such as Doha-Kathmandu. My experience from Gatwick via the Gulf hub to the Nepali capital on back-to-back 787s last October was uncomfortable and joyless. Yet Gulf rival Emirates will soon welcome dozens of Dreamliners into its fleet for the first time. British travellers are likely to be flying on the 787 for a couple of decades yet. But after the tragedy in Ahmedabad, passengers' appreciation of the Dreamliner may diminish.
The Independent
4 hours ago
- The Independent
What is the cost to the economy of Israel's attack on Iran?
If we needed another lesson about the difficulties of managing an economy in a period of nerve-wracking uncertainty, Israel's attacks on Iran have provided it. Market reaction to Israeli 200 fighter jets hitting more than 100 targets was swift – and predictable. The oil price shot up, the gold price shot up and share prices tumbled across the world. The FTSE escaped the worst of the damage, largely because of its substantial contingent of natural resource stocks, including the presence of two heavily weighted oil majors in its upper reaches. But it still gave up ground following its record close. Economic institute DIW has warned that higher oil prices resulting from the hostilities will hurt the German economy, Europe's economic engine – and the impact will not be confined there. Britain is in the midst of a moderate inflationary spike, with rates jumping to 3.4 per cent in April (3.5 per cent officially, but the Office for National Statistics got its sums wrong and has decided not to course correct). The jump in prices, created by an oil slick of bill, fare and tax increases in that month, is at least expected to be temporary. But higher fuel prices have the potential to change that by powering up prices, potentially leading to a higher and longer-lasting spike than had been expected. The Bank of England has no control over the international price of oil. However, history tells us it will act to damp down what it describes as the 'second order effects' from pricier oil fuelling inflation. That is a problem for the UK economy – and chancellor Rachel Reeves, while we're at it – because they could really use the helping hand of lower interest rates. Donald Trump's tariffs are hurting exporters and even though there have recently been signs that the trade deal secured by Keir Starmer will take effect soon, the base 'liberation day' 10 per cent levy will still largely apply to British exports. While this still leaves the UK in a relatively favourable position, the impact of the much higher tariffs on those without the (relative) benefits of a Starmer-style deal will still hurt. The US remains the world's biggest economy. Trump's economic vandalism will obviously damage the wider global economy, constricting trade, reducing growth, adding to the crippling uncertainty that many investors are apt to react to by hiding under their beds with pots filled with as much gold as they can afford. Companies can be expected to respond similarly if the hostilities continue: when CEOs hear war drums beating, they are apt to switch their focus from risk taking and investment to cost cutting and cash conservation until the turmoil has passed. In recent days, hopes of more UK interest rate cuts have been rising. The economy's struggles in April, which recorded the sharpest contraction in two years, the fact that inflation is actually lower than the ONS said it was and the marked weakening of the labour market, with unemployment rising, job openings vanishing and wage settlements falling, are food for those calling for looser monetary policy, including your correspondent. Traders had been betting on two more cuts, with the first coming in September. Israel's action, however, could shift the calculus again, certainly if it the immediate rise in oil prices is sustained. The Bank's rate setting Monetary Policy Committee (MPC) is not expected to move when it meets next week but, as ever, the comments in the minutes and the way the vote goes will merit close attention. Swati Dhingra will, as she typically does, take a dovish line. I would expect her to vote for an immediate cut. The big question is whether any of her colleagues on the nine-member MPC will join her. The uncertainty created by the outbreak of yet more hostilities is probably all the reason the majority will need for sitting tight and waiting to see how this plays out, before assessing the impact on inflation and the economy . For the rest of us, by which I mean those of us lucky enough to have savings and investments, the message is, well, sorry to descend into cliche, but keep calm and carry on. That meme, modern cliche and merch marketing tool – even though the faux wartime nostalgia of said merch is completely fake – represents sound advice. The markets are apt to panic when things like this happen. Traders who play an important role in price formation, exhibit herd like behaviour, even though this about the worst possible response. It was ever thus. But that doesn't mean we have to follow suit. Much better to sit tight and hope (pray?) that it blows over soon.
Reuters
6 hours ago
- Reuters
US consumer sentiment improves in June
WASHINGTON, June 13 (Reuters) - U.S. consumer sentiment improved for the first time in six months in June, but that could be temporary after Israel launched missile strikes against Iran, boosting oil prices. The University of Michigan Surveys of Consumers on Friday said its Consumer Sentiment Index jumped to 60.5 this month from a final reading of 52.2 in May. Economists polled by Reuters had forecast the index rising to 53.5. "Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed," said Surveys of Consumers Director Joanne Hsu. "However, consumers still perceive wide-ranging downside risks to the economy." Consumers' 12-month inflation expectations fell to 5.1% from 6.6% in May. Long-run inflation expectations dipped to 4.1% from 4.2% last month. Oil prices surged more than $5 per barrel on Friday to multi-year highs as the Israeli strikes on Iranian nuclear facilities stoked fears of retaliation and disruption of crude supplies from Middle East.
