20/05/2025
Easing Financial Pressures Amid Stabilising Inflation
In a move that had been widely expected by economists and financial markets, the Reserve Bank of Australia has cut the official cash rate by 25 basis points to 3.85%. This marks the second reduction in 2025 and signals a shift toward a more supportive approach to monetary policy as inflation continues to ease.
The decision comes on the back of positive inflation data, with the annual trimmed mean falling to 2.9% – the lowest it’s been since early 2021. Headline inflation has dropped to 2.4%, keeping it well within the RBA’s target range of 2 to 3%.
Why It Matters
The cut comes as a welcome relief for many households still feeling the pinch from a lengthy period of rising costs and high borrowing rates.
For mortgage holders on variable rates, the rate cut could mean lower monthly repayments. Someone with a $750,000 mortgage could see their weekly repayments drop by about $114. With cost-of-living pressures still front of mind for many Australians, this easing is likely to be felt quickly.
The share market responded positively to the news, with the ASX gaining ground and the big banks, including Commonwealth Bank of Australia, hitting new highs. Investors have taken this move as a vote of confidence in the direction of the economy, at least in the short term.
The Bigger Picture
While inflation has now settled within the target band, the RBA remains cautious. Global uncertainty has increased in recent months, particularly due to rising trade tensions and ongoing geopolitical risks. Although recent shifts in tariff policies have helped stabilise markets somewhat, the overall outlook for global growth remains cloudy.
Closer to home, things are also mixed. Real household incomes are starting to lift and some indicators of financial strain have eased. But demand across sectors is uneven, and some businesses still report difficulty in passing on higher costs to customers. Productivity growth remains sluggish, and while wage growth has softened, unit labour costs are still high.
On the jobs front, the labour market remains tight. Employment is growing and underutilisation remains low. Many employers are still reporting staff shortages, though wage growth appears to be flattening, which should help keep inflationary pressure in check over time.
What It Means for Borrowers
For borrowers, this is the first real sign of relief in some time. Those on variable home loans can expect their banks to begin passing on the cut, though the speed and size of the changes will vary between lenders.
Fixed-rate borrowers won’t feel an immediate impact, but as their loan terms come to an end, they’ll be entering a rate environment that’s far less punishing than what we saw in 2023 and 2024.
For first-home buyers, the rate cut improves affordability to some extent, but it may also encourage more competition in the market, especially in already-tight segments. That could put some upward pressure on prices if demand picks up.
The Role of Brokers
Mortgage brokers are likely to see a surge in interest from borrowers looking to refinance or reassess their current loans. With rates beginning to trend down, there’s a renewed incentive to compare lenders and consider switching to better deals.
Brokers are also well-placed to help borrowers understand how broader economic conditions might affect their financial decisions. From navigating lender policies to choosing between fixed and variable products, their advisory role is more important than ever in this shifting landscape.
What’s Next?
While this rate cut is a clear step toward easing financial pressure, the RBA has emphasised that its approach remains cautious. It will be keeping a close eye on inflation, global economic shifts, and domestic demand before making further moves.
The July board meeting will be closely watched, with many economists expecting at least one more rate cut before the end of the year, depending on how inflation and the broader economy evolve.
The RBA’s decision to bring the cash rate down to 3.85% sends a clear message: inflation is under control, and the focus can now shift slightly toward supporting households and businesses. It’s not a full pivot to stimulus, but it’s a welcome adjustment for borrowers and a sign that monetary policy is no longer purely in damage-control mode.
For brokers, lenders, and everyday Australians alike, this move creates a bit more breathing room and perhaps a little optimism too.
