RBA Cuts Rates Again. What It Means for You, the Economy and the Property Market!

This week the Reserve Bank of Australia cut the cash rate by 0.25 percentage points to 3.6%. That is the lowest it has been in more than two years. At the same time the RBA released its Statement on Monetary Policy. This report gives us an inside look at how the bank sees the economy and interest rates moving over the next few years. The Statement is what board members read before they decide on rates. It is not a promise or exact forecast, but it does give strong hints about where we are heading.

Inflation Steady, Rates Falling Slowly

Markets now expect the cash rate to drop to about 2.9% by the end of 2026. Even so, the RBA’s outlook for inflation has not changed since May. Its preferred measure of inflation, called the trimmed mean, is expected to hold at 2.6% for the next two years before easing to 2.5% by late 2027. That is right in the middle of the RBA’s 2% to 3%target, by the end of 2027 traders expect the next round of rate rises to begin, with the cash rate climbing back to around 3.1%.

The message is clear. If the RBA’s numbers are right, the economy can handle a rate near 3% while keeping inflation under control. Big cuts are unlikely unless something major goes wrong overseas, which the RBA admits is still a real risk. The RBA says activity and the job market should balance out, keeping inflation steady in the middle of the target range.

Why Productivity Is Key

The RBA has lowered its long term productivity growth estimate from 1% to just 0.7% a year. This might sound small but it matters a lot. Productivity is about getting more output from the same resources. When that improves, wages and living standards tend to rise without pushing prices up.

With weaker productivity, the RBA now expects slower wage growth and softer household spending. In other words, pay rises are likely to be smaller and people may still be careful with their money. Many businesses say they are struggling to get the most out of new technology because of rising software costs. This raises the question of whether too much of the value from these investments is going overseas to big tech companies.

Bigger Mortgages on the Rise

Lower rates make it cheaper to borrow but they also tempt buyers to take on bigger loans. Fresh ABS figures show the average new owner occupier mortgage has jumped $18,000 in just three months, hitting $678,011. NSW still has the largest average loan at $816,000. Western Australia had the biggest increase, up $26,000. Queensland, South Australia and Victoria also set new records.

In the June quarter, 80,929 new owner occupier loans were approved. That is slightly more than the previous quarter and still strong by historic standards. The value of these loans is up 7.4% compared to last year. Investment lending is climbing too, there were 49,065 new investment loans in the quarter worth $32.9 billion. Even though the annual growth rate has slowed, the number of loans remains high.

What This Means for Property Prices

Canstar says each 0.25 percentage point rate cut boosts the average person’s borrowing capacity by around $12,000. After the three cuts in February, May and August, that adds up to $35,000 more borrowing power.

For buyers this can make a big difference at auction, especially in popular suburbs. But as Canstar’s Sally Tindall points out, being able to borrow more does not mean it is always wise to do so. When rates drop, some buyers bid higher which can push up prices. This could happen again in the months ahead, particularly in cities where demand is already strong. Sydney’s median house price has already reached a record $1.5 million this year.

What It Means for You

Homeowners – If your lender passes on the full cut, a $600,000 mortgage could be about $100 cheaper per month. If you can, keep paying the old amount to reduce your loan faster.

First home buyers – Lower borrowing costs are helpful but rising prices can offset the benefit. If you are ready to buy, it may be worth acting sooner rather than later.

Investors – Cheaper finance can improve returns but the RBA’s forecasts show slower economic growth ahead. Make sure any investment stacks up on more than just rate savings.

Tenants – More property investment could increase rental supply over time, which might help slow rent increases. But demand for housing overall is still strong, so any relief may take time.

Looking Ahead

The RBA’s next meeting is on September 30. Most analysts think the next cut will be in November, but a fourth cut this year is possible if inflation keeps cooling and the economy slows further.

The central bank has made it clear that rate cuts will be gradual. That means we are in a market with both opportunities and risks. If you are planning to buy, refinance or invest, the smart move is to plan for different outcomes. Rates are falling now but they can rise again sooner than expected. The more prepared you are, the better you will handle whatever comes next.

Sources: ABC News, The Sydney Morning Herald & News.com.au