RBA expected to cut interest rates in 2025

That’s certainly the hope - and expectation - of many, including economists and financial markets.

After more than a year of the Reserve Bank of Australia (RBA) maintaining its cash rate target at 4.35 per cent, forecasts suggest at least one 0.25 percentage point cut could occur in 2025.

Here’s what you need to know:

RBA Meeting Schedule for 2025

The RBA board will meet eight times this year, with the first meeting scheduled for 17–18 February. This two-day meeting concludes with a policy announcement on Tuesday at 2:30 pm AEDT, followed by a press conference.

Subsequent meetings are planned for:

• 31 March–1 April
• 19–20 May
• 7–8 July
• 11–12 August
• 29–30 September
• 3–4 November
• 8–9 December

While the reduced schedule—down from 11 annual meetings—provides fewer planned opportunities to adjust interest rates, the RBA retains the ability to hold emergency meetings, as seen during the COVID-19 crisis.

When Are Interest Rate Cuts Expected?

Opinions vary, but May is a popular forecast for the first rate cut. Economists from ANZ, NAB, and Westpac predict a 25-basis-point cut in May, which would lower the cash rate to 4.1 per cent.

The Commonwealth Bank’s economics team, however, expects a February rate cut but acknowledges uncertainty following stronger-than-expected employment data.

Financial markets, as measured by the ASX’s probability indicator, currently place a 73 per cent chance of a February rate cut.

Impact on Home Loan Repayments

If banks pass on rate cuts in full, borrowers could benefit from reduced repayments.

According to RateCity:

• A $500,000 home loan at the current average variable rate of 6.33 per cent would see monthly repayments fall by $76 with a 0.25 percentage point cut.
• Two rate cuts (e.g., in May and August) could lower repayments by $151 per month.
• A $1 million home loan would result in monthly savings of $153 with one cut and $303 with two cuts.

For prospective buyers or those refinancing, falling rates may also increase borrowing capacity.

What Will Influence the RBA’s Decisions?

Inflation remains the RBA’s primary focus. Governor Michele Bullock has reiterated that “sustainably returning inflation to target within a reasonable time frame remains the Board’s highest priority.”

Key data releases before the February meeting include:

• 8 January: Monthly consumer price indicator for November
• 29 January: Quarterly consumer price index for the December quarter and monthly indicator for December

Other factors influencing the RBA’s decision include:

• The strength of the jobs market, with the December labour force survey (released 16 January) being critical.
• Household spending during the holiday season, with retail trade and household spending data expected before the February meeting.
• International developments, particularly China’s economic performance and US economic policies.

What Have Banks Been Doing with Home Loan Rates?

Anticipating future rate cuts, many banks have already adjusted home loan rates. Between October and mid-December 2024:

• Variable rates saw 29 cuts compared to only seven increases.
• Fixed rates experienced over 40 cuts across one-, two-, and three-year terms, as banks sought to lock in customers ahead of expected rate reductions.

Whether February, May, or later in the year, mortgage borrowers could finally see some relief in 2025, depending on inflation trends, economic conditions, and the RBA’s policy decisions.