RBA Cuts Interest Rates for the Second Time in 2025
The official cash rate has dropped below 4% for the first time since 2023, after the Reserve Bank of Australia made a 25 basis-point cut this week.
This is the second rate cut in 2025, bringing the central bank’s interest rate to 3.85%.
Global Uncertainty Continues to Shape RBA Outlook
In its statement following the May meeting, the RBA acknowledged that inflation has eased from its peak, but global conditions remain unpredictable.
“Uncertainty in the world economy has increased over the past three months and volatility in financial markets rose sharply for a time,” the statement read.
Although financial market prices have rebounded after tariff announcements, the central bank cautioned that uncertainty remains around the scope of tariffs, foreign policy responses, and ongoing geopolitical risks.
“This has also contributed to a weaker outlook for growth, employment and inflation in Australia.”
Inflation Target Still in Sight, More Cuts Likely
Despite volatility, the inflation rate is still expected to remain within the RBA’s 2–3% target range.
Betashares chief economist David Bassanese told the ABC that more easing is likely:
“With underlying inflation expected to fall to the mid-point of the target band, there remains a strong case for the RBA to continue to process of ‘normalising’ interest rates by reducing them from still restrictive levels.”
“It’s not unreasonable to expect two to three more interest rate cuts this year.”
What Rate Cuts Mean for Borrowers
For borrowers, the rate drop means lower mortgage repayments. A typical $1 million home loan could result in savings of about $160 per month.
This financial relief, however, has sparked renewed interest among potential homebuyers—raising concerns from mortgage brokers.
Mortgage Brokers Caution Against Borrowing to the Limit
Mortgage brokers report a spike in enquiries from buyers asking how much more they can borrow.
But experts are urging caution.
Theo Chambers, CEO of Shore Financial, shared his concerns with The Age:
“People are generally still borrowing the maximum they possibly can, especially now that confidence is somewhat back in the marketplace.”
“They’re pricing in future rate cuts – while they can’t use that to increase their capacity at the time of purchase, they can stretch themselves to the maximum.”
He warns buyers not to empty their savings just to upsize:
“In a volatile economy… what happens if someone loses their job? Anyone earning $150,000 to $200,000 – they can’t just get a job straight away.”
Borrowers Still Trying to Maximise Capacity
Anthony Landahl, Managing Director at Equilibria Finance, said more clients are seeking to borrow at their upper limit since rates began to drop.
“There’s definitely people looking at ‘how much can I borrow?’ and saying ‘if we get another one or two rate cuts, what does that mean for my borrowing capacity?’”
“There’s definitely more confidence about people looking to maximise what they can borrow.”
