July cash rate cut on the way: Economists

In good news for mortgage holders, markets and economists are almost unanimous that the RBA's monetary policy board will deliver a 0.25% cash rate cut on Tuesday, lowering the rate to 3.60%.

The board has begun its two-day meeting in Sydney with all four of Australia's big banks tipping there will be a rate cut by Tuesday afternoon.

The odds of a July rate cut switched to unbackable after a surprise dip in the May inflation figure to 2.1%, down from 2.4% in April.

It was weaker than market expectations, triggering three of the big banks to move forward their expectations of the next cash rate cut from August to July.

See also: Westpac revises call, sees RBA cutting to 3.60% in July 

See also: ANZ joins the line up: now predicts a July rate cut

Previously, NAB had been alone in backing a July cut, while the milquetoast retail trade figures released last week are what prompted ANZ's team to change its tune.

The Australian Stock Exchange cash rate tracker ended last week with markets pricing in a 97% chance of a cash rate cut on Tuesday, softening from 100% certainty mid-week.

What will the RBA board consider?

Although the RBA's preferred quarterly inflation data isn't released until the end of July, the May figure is enough to indicate inflation is falling faster than expected.

But RBA governor Michele Bullock has previously said the board is now less worried about inflation than it is about a sharp downturn in economic growth triggered by US tariffs.

While the RBA has been deliberating on Monday morning, the Trump administration has again moved the timeline for its tariff regime to kick in, effectively delaying it until 1 August.

Quite apart from the trade tariffs, the Australian economy has shown sluggish growth, bogged down by lacklustre productivity.

A 25-basis point rate cut in July - the third for 2025 - would be a bid to protect the economy on a few fronts.

What would a July rate cut mean to mortgage holders?

In dollar terms, owner occupiers with a $600,000 variable home loan paying an interest rate of 6.15% p.a. would save around $97 a month, or $1,159 a year.

Check how much your home loan repayments could decrease by using Your Mortgage's Mortgage Repayment Calculator 

Some economists are predicting another four cuts to the cash rate by early 2026, taking the rate to 2.85% - a full percentage point under the current rate.

Others are saying there may be as many as six cuts, depending on how the global economy responds to US tariffs.

Although mortgage holders may be pleased to hear it, for first homebuyers and those looking to get into the housing market, it's likely to be a double-edge sword.

Falling interest rates will see more people qualify for home loans and be eligible to borrow more money.

This, in turn, can serve to push home prices higher.

See also: Median house prices around Australia 

What to do if interest rates fall

The big banks report just one in 10 borrowers lowered their home loan repayments after the May cash rate cut, in line with what happened after the February cut.

Different lenders have different methods of passing on interest rate cuts - some ask customers to opt in to lower repayments while others reduce them automatically.

Macquarie Bank head of personal banking Ben Perham said it's important customers understand when and how their lenders apply home loan interest rate cuts.

"Most banks won't automatically lower your minimum monthly repayments to match your new rate, so you might need to go online, give your bank a call, or visit a branch to request a change," he said.

"If you can afford to keep your repayments the same, you could pay off your mortgage faster."

The Reserve Bank of Australia will hand down its cash rate decision at 2:30 pm on Tuesday.

Image by Ketut Subiyanto via Pexels

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