Shortly thereafter the Reserve Bank of Australia (RBA) cut the official cash rate from 4.1 per cent to a record low. This is their second cut in 2025. At the RBA’s May meeting, they declared their intention to raise interest rates, placing even further financial strain on millions of Australian households. This comes after a first cut announced in February.
The RBA’s Monetary Policy Board determined that lowering the cash rate again was necessary to stimulate economic growth and assist homeowners amid ongoing inflation concerns. The RBA has an explicit target band for inflation of 2–3 percent. Indeed, recent figures released by the Australian Bureau of Statistics have headline inflation for the March quarter confirmed at 2.4 percent, with underlying inflation confirmed at 2.9 percent.
Economists and financial markets had been expecting this announcement, arguing that it would provide a massive shot in the arm to borrowers’ cash flows. Against the backdrop of quickly soaring interest rates, the RBA’s decision is a godsend especially for those struggling to meet mortgage repayments amid a cost of living crisis.
Federal Treasurer Jim Chalmers expressed optimism regarding the RBA’s decision, stating, “Today the RBA Monetary Policy Board decided to lower the cash rate again for the second time in three months. This is very welcome relief for millions of Australians.” He emphasized that the cut reflects “the substantial and sustained progress we’ve made together on inflation,” while acknowledging the uncertain global environment.
In a statement reacting to the vote, Chairman Chalmers noted that this reduction represents significant progress. He warned we have to do the work yet. “Today’s cut doesn’t mean the job is finished, but it will help,” he added.
Indeed, the financial sector has reacted well to the RBA’s announcement. The big four banks—the four largest retail banks in Australia—have already issued their first hikes on home loan variable interest rates. The bank introduced a uniform 0.66 percent cut for new and existing customers, which it will apply from June 3. In their wake, Commonwealth Bank (CBA) and ANZ are expected to join them on May 30. Innovative new low-cost lenders such as Athena and Unloan have moved quickly to fill that gap. Unlike traditional banks, they’re already passing the benefits of the rate cuts to their existing variable customers.
These savings would be significant for borrowers with a $600,000 loan, who would save an average of about $91 a month—a crucial source of relief from their financial burdens. Angus Sullivan from a major financial institution remarked, “Today’s decision will help to deliver some much-needed additional relief for many Australians with a mortgage.” He continued, “When combined with the February rate cut this change should free up some more cash flow for homeowners who need it.”
Sullivan directly addressed the effect of tighter budgets — something most families have felt in recent months. “We know many have had tighter budgets in recent months and will welcome that additional flexibility,” he stated.
The larger economic impact of this anticipated rate increase is still very much a question, pending on too many variables to count. Isaac Gross, an economist, pointed out, “This outlook is highly contingent on two major factors: the continued moderation of inflation and the potential impact of Donald Trump’s trade policy.”
