RBA Interest Rate Cut Anticipated with Encouraging CPI Data
The anticipated interest rate cut by the RBA in February suggests potential relief for mortgage holders, thanks to a recent drop in inflation to 2.4 per cent.
The revision from a May interest rate cut is welcome news for mortgage holders seeking repayment relief, particularly as one in ten admits they might be forced to sell if the cut does not occur until May.
The cash rate has remained at a high 4.35 per cent since November 2023, amid Australia's struggle with elevated inflation. However, the consumer price index (CPI) for the December quarter, released on Wednesday, indicated an annual decrease to 2.4 per cent, with underlying inflation reaching its lowest point in three years.
NAB chief economist Alan Oster highlighted this development, stating, "We now expect the RBA to cut the cash rate by 25 basis points in February."
The Q4 CPI data suggests that inflation has moderated faster than the RBA anticipated, paving the way for a potential downward revision in the inflation outlook in the forthcoming February monetary policy statement. This situation makes February the most likely timeframe for a gradual easing of interest rates.
NAB forecasts that the reduction phase will be gradual, projecting the cash rate to decrease to 3.1 per cent by February 2026.
Furthermore, mortgage holders can expect significant decreases in repayments. Economist and Yahoo Finance contributor Stephen Koukoulas noted, "Interest rate cuts are like cockroaches - there is never just one of them." He explained that for every 25 basis point cut, a $500,000 mortgage holder could save approximately $96 per month. These savings compound with each rate cut, meaning four cuts could lead to about $385 in monthly savings on a $500,000 mortgage.
As mortgage holders await further developments, the prospect of rate reductions fuels optimism for many struggling with high repayments.
