RBA delivers May cash rate: What it means for the market
After weeks of speculation, the Reserve Bank of Australia has cut the cash rate, lifting buyer confidence, borrowing power, and fuelling demand, while property price growth will hinge on affordability and future rate trends.
The Reserve Bank of Australia (RBA) has chosen to cut Australia’s cash rate by 0.25 percentage points to 3.85 per cent, following a meeting of the board’s governors this week.
Although this move follows the RBA’s previous choice to hold the cash rate at 4.10 per cent in April, the board’s latest decision marks the first time since March 2020 where the cash rate has been cut twice in three meetings.
According to Canstar, borrowers with a loan size of $600,000 could see a $91 drop in monthly repayments if their bank passes the cash rate on full to its existing variable rate borrowers.
Borrowers with a larger loan of $750,000 are expected to see a decrease of $114, while those repaying a $1,000,000 loan would see their repayments fall by $152.
The move was widely expected by economists nationwide, with Australia’s big four banks – ANZ, Commonwealth Bank, NAB and Westpac – all predicting a rate cut in the April meeting.
CEO of Laing+Simmons and president of the Real Estate Institute of Australia (REIA), Leanne Pilkington, said that ongoing economic pressures and easing inflationary figures had provided the necessary conditions for an April rate cut.
“With inflation moderating back to the Reserve Bank’s target range, and the global economy continuing to grapple with the actual and potential fallout of a fluctuating tariff situation, household spending is constrained. This supports the case for a rate cut,” Pilkington said.
REA Group senior economist, Eleanor Creagh, said she expects the April cash rate cut to bolster buyer confidence and borrowing capacities, but noted that the extent of demand and price growth could still vary over 2025.
“The rate cut offers some relief for borrowers, but affordability remains a challenge and sustained affordability improvements will depend on further reductions in the cash rate over time,” Creagh said.
“At the same time, population growth and a persistent undersupply of new housing continue to underpin prices,” she added.
While Creagh had forecast that property prices would continue to rise over the coming months, she said that the rate of growth was likely to be more modest compared to recent years, and could vary depending on the RBA’s future decisions over 2025.
“While inflation is easing, uncertainty around the global and domestic outlook remains high. The RBA reiterated that policy is not on a pre-set path and future moves will depend on incoming data,” Creagh said.
LJ Hooker Group’s head of research, Mathew Tiller, said that the RBA’s decision to cut the rate would provide forward support to the Australian economy and help to prevent a sharper slowdown later in the year stemming from the US tariffs on imports.
While Tiller acknowledged that affordability pressures could still dampen the effects of the April rate cut on the property market, he forecast that demand would still likely pick up as market confidence returns.
“We will see confidence return by increasing borrowing capacity, improving serviceability, and putting more cash in the pockets of everyone,” Tiller said.
“With more rate cuts expected, buyers will be looking to get in before rates fall further and demand strengthens,” he concluded.