Reserve Bank slashes interest rates in major cost of living relief for homeowners: How much Aussies will save on their mortgage

•  Reserve Bank cuts interest rates

By STEPHEN JOHNSON, ECONOMICS REPORTER FOR DAILY MAIL AUSTRALIA

Published: 05:30 BST, 20 May 2025 | Updated: 05:52 BST, 20 May 2025

The Reserve Bank has cut interest rates – saving the average borrower $100 a month on repayments.

The cash rate has been eased by 25 basis points, taking it back to 3.85 per cent for the first time since June 2023. 

Home borrowers have given relief for the second time this year, with both underlying and headline inflation now within the RBA’s two to three per cent target. 

‘Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,’ the RBA said on Tuesday.

An owner-occupier borrower with an average $660,000 mortgage would save $107 on their monthly repayments with the latest rate cut, as variable home loan rates with the major banks fell under six per cent.

The Reserve Bank’s language has also softened towards inflation, with keeping unemployment low now its key priority.

‘The board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome,’ it said.

While headline inflation has fallen to 2.4 per cent, the Reserve Bank is expecting the consumer price index to climb to 3 per cent by the end of 2025, rising to 3.1 per cent in June 2026 after the federal government’s extended $75 quarterly electricity rebates end in December. 

The Reserve Bank has cut interest rates – saving the average borrower $100 a month on repayments

Unemployment was also forecast to rise from 4.1 per cent now to 4.3 per cent by Christmas. 

The Reserve Bank also warned that Donald Trump’s tariffs were creating uncertainty.

‘World trade policy is changing rapidly, thereby making the central forecasts subject to considerable uncertainty,’ it said.

Financial markets regarded a rate cut on Tuesday as a 96 per cent chance, and see the RBA cutting rates to 3.35 per cent by the end of this year.

The Reserve Bank has so far delivered 50 basis points of rate cuts in 2025, providing relief in Febuary and May, after 13 increases in 2022 and 2023 took the cash rate to a 13-year high of 4.35 per cent. 

The cash rate has been eased by 25 basis points, taking it back to 3.85 per cent for the first time since June 2023 (pictured is an Oran Park house in Sydney’s outer south-west)

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Reserve Bank slashes interest rates in major cost of living relief for homeowners: How much Aussies will save on their mortgage

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