Struggling mortgage holders set for much-needed relief as RBA cuts cash rate
After its August meeting, the RBA has slashed interest rates by 25 basis points, bringing the rate down to 3.60 per cent from 3.85 per cent.
Tuesday's interest rate decision by the RBA board was unanimous and in line with previous comments from the RBA where the central bank confirmed rate cuts were just about timing.
Tuesday's interest rate cut is the third of the cycle after rate cuts in February and May but follows the bank's shock decision to keep it on hold in July.
In its statement the RBA said the board remains cautious to developments both domestic and overseas and called today's 25 basis point cut 'appropriate.'
'With underlying inflation continuing to decline back towards the midpoint of the 2–3 per cent range and labour market conditions easing slightly, as expected, the Board judged that a further easing of monetary policy was appropriate,' the board wrote in a statement.
'This takes the decline in the cash rate since the beginning of the year to 75 basis points.'
Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said falling inflation and rising unemployment throughout July 'paved the way' for an August rate cut.
'The RBA showed an abundance of caution in keeping rates on hold in July,' he said prior to Tuesday's announcement.
'Since then, we've seen more evidence that the labour market is softening.
'Moreover, the Q2 CPI did not contain any red flags around core inflation pressures.'
Australia's Cash Rate 2022
BDO economics partner Anders Magnusson said while Tuesday's cut will help borrowers, it won't solve every cost-of-living challenge.
'While it would provide much-needed breathing room for households carrying large mortgages, those looking to buy are likely to face higher house prices as borrowers gain buying power,' he said.
'Mortgage stress is now at its highest level since January, affecting more than one-quarter of borrowers.'
Mr Magnusson said with inflation under control he forecasts at least one more rate cut by the end of the year.
According to Finder, a homeowner with a $500,000 mortgage is set to save $2884 per year if lenders pass the rate cut on in full, while those owing $1m are tipped to save $5768 a year.
Tuesday's announcement comes in line with market expectations, with 92 per cent of experts saying the RBA would slash interest rates.
The move comes on the back of quarterly consumer price data at a low 2.1 per cent, the bottom of the RBA's 2 to 3 per cent target range, and a trimmed mean inflation rate, which strips out volatile items such as fuel, at 2.7 per cent.
Australia's unemployment rate also came in higher, up from 4.1 to 4.3 per cent.
Canstar data insights director Sally Tindall said Tuesday's rate cut meant Australians should be paying less than 5.50 per cent on their mortgages.
'In fact, if the majority of banks pass the cut on in full, which they should absolutely do, then there should be over 30 lenders offering at least one variable rate under 5.25 per cent,' she said.
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