RBA Cuts Rates to 3.85%: Relief for Borrowers, Challenges for First-Time Buyers
The Reserve Bank of Australia has reduced the cash rate to 3.85%, offering relief to mortgage holders but raising concerns about housing affordability for first-time buyers.
RBA’s Latest Move: A Double-Edged Sword
On May 20, 2025, the Reserve Bank of Australia (RBA) announced a 0.25 percentage point cut to the official cash rate, bringing it down to 3.85%—its lowest level in two years. This marks the second rate reduction this year, following a similar cut in February.
RBA Governor Michele Bullock stated that the decision was influenced by easing inflation and a stable job market. However, she cautioned about the unpredictable global economic landscape, describing it as a “complete rollercoaster.”
Economic Indicators at a Glance
| Indicator | Current Value | Notes |
|---|---|---|
| Official Cash Rate | 3.85% | Reduced from 4.1% |
| Trimmed Mean Inflation (Annual) | 2.9% | Within RBA’s target range of 2–3% |
| Headline Inflation (Annual) | 2.4% | Also within target range |
| Wage Price Index (Annual) | 3.4% | Indicates steady wage growth |
| Australian Dollar (USD) | 0.642 | Slight drop following the rate cut |
Implications for Homeowners and Buyers
For existing mortgage holders, the rate cut translates to potential savings. For instance, on a $750,000 loan, monthly repayments could decrease by approximately $114.
However, the scenario is more complex for first-time homebuyers. Experts warn that the increased borrowing capacity may drive up property prices, making it more challenging for new entrants to the market. Financial commentator Scott Pape criticized the move, suggesting it could inflate housing prices further, exacerbating affordability issues.
Global Factors Influencing the Decision
The RBA’s decision is also a response to global economic uncertainties, notably the recent U.S. tariff policies under President Donald Trump. These developments have introduced volatility in financial markets, prompting the RBA to act cautiously to safeguard Australia’s economic stability
Looking Ahead: More Cuts on the Horizon?
Market analysts are divided on the future trajectory of interest rates. Some, like Betashares chief economist David Bassanese, predict further cuts, potentially bringing the cash rate down to 3.35% by the end of the year.
However, the RBA remains cautious, emphasizing the need to balance economic stimulation with the risk of inflating asset bubbles, particularly in the housing market.
