Fixed mortgage rates start to move below 5% ahead of high-stakes rate decision
A supersized 50-basis-point interest rate cut could be on the cards when the Reserve Bank of Australia (RBA) gathers the troops next Tuesday.
The RBA Rate Indicator, which analyses interbank cash rate futures to calculate the probability of an interest rate change, shows a 51% probability of the cash rate falling to 3.35%.
That would bring interest rates to their lowest level since February 2023.
While all of the major banks have put their money on a lighter 25-basis-point cut, the RBA’s Monetary Policy Board has proved unpredictable in 2025.
The Board blindsided the market by holding the cash rate at 3.85% in July, with policymakers citing the need for more proof that inflation is coming down appropriately.
They got their wish last week, when the Consumer Price Index (CPI) rose just 0.7%, undershooting market expectations. Annual inflation growth eased to 2.1% in the June quarter, the lowest since March 2021, according to the Australian Bureau of Statistics.
As it stands, Westpac, NAB, Commonwealth Bank and ANZ expect the RBA to reduce rates to 3.6%, although Australia’s seventh-largest mortgage lender Bendigo and Adelaide Bank’s chief economist David Robertson has raised the prospect of a 0.35% cut.
Banks lower mortgage rates
Some banks have already started to price in a rate cut next Tuesday.
Canstar’s database shows that two lenders – Australian Mutual Bank and Macquarie Bank – are now offering sub-5% rates on some fixed-rate products.
Borrowers will be watching closely to see how banks respond next Tuesday. If the widely expected cash rate cut goes ahead, there will be strong pressure on banks to pass the full reduction onto their customers.
Peter White, managing director of the Finance Brokers Association of Australia (FBAA), called on all lenders to reduce their variable rates “immediately and in full” following the RBA’s last cut in May.
Industry figureheads are likely to make a similar appeal if and when the RBA decides to cut again.
