At its latest board meeting, the Reserve Bank of Australia (RBA) announced a 0.25 percentage point cut to the official cash rate — bringing it down to 3.85%.
This move follows a steady hold at 4.10% in April and reflects the RBA’s growing confidence that inflation is easing and returning to target. It’s the first time the cash rate has fallen below 4% since 2023, and the second consecutive cut following a prolonged period of stability — signaling a clear shift in the RBA’s stance.
But what does this really mean for you — whether you’re a homeowner, business owner, investor, or saver?
Why the RBA Cut Rates
The RBA’s decision is a response to a combination of domestic and global pressures.
Falling inflation
Underlying inflation has dropped back within the RBA’s 2–3% target range. For two consecutive quarters, headline inflation sat below the mid-point of 2.5%.
Wage growth stability
Wages have risen in line with expectations, supporting sustainable household spending without adding new inflationary pressure.
Slowing economy
Consumer spending has flatlined, GDP growth has softened, and global trade remains shaky — all pointing to a broader slowdown.
Global uncertainty
Tariff moves by the Trump administration triggered a fresh wave of market volatility, increasing risk aversion and prompting central banks to soften policy stances.
In this environment, the RBA has opted to support the economy by reducing borrowing costs — aiming to stimulate confidence, spending, and investment.
What the Rate Cut Means for Homeowners & Borrowers
If you have a variable-rate home loan, this is good news. A 0.25% rate cut could reduce monthly repayments by around $91 on a loan amount of $600,000 over 25 years.
That might not seem huge — but in today’s cost-of-living environment, every dollar counts. And if you’re looking to refinance, the current environment could unlock sharper rates or better loan features.
Now is a great time to review your mortgage strategy and make sure you’re not paying more than you need to.
What Lower Rates Mean for Potential Home Buyers
If you’ve been holding off on buying a home or investment property, this rate cut may help shift the balance in your favour. It can boost your serviceability (how much you can borrow) and increase your confidence to make a move — especially if prices in your preferred area have stabilised.
Just keep in mind that the property market is still competitive. Knowing your borrowing power and getting pre-approved early is essential.
What Business Owners Need to Know
For business owners, the rate cut offers greater financial flexibility.
Whether you’re thinking about funding growth, purchasing equipment, or consolidating debt, lower interest rates can reduce the cost of borrowing and improve cash flow.
It’s also a good time to consider refinancing business loans or setting up a working capital facility to support smoother operations through economic uncertainty.
What a Lower Cash Rate Means for Investors & Savers
On the flip side, rate cuts generally mean lower returns on savings accounts and term deposits — which can be frustrating if you’re relying on those returns for income.
However, for investors, this environment may prompt shifts in asset allocation as money flows into equities, property, or higher-yield alternatives. Volatility may remain elevated, but with inflation easing, the medium-term outlook for risk assets could improve.
As always, diversification and alignment to your risk profile are key.
What the Rate Cut Signals About the Economy
This rate cut is more than a short-term boost. The RBA sees inflation coming under control, and while the economy still faces headwinds, there’s room to loosen the reins.
Regardless, don’t expect a rapid return to ultra-low rates — the RBA is likely to move cautiously, especially with global risks still looming.
Let’s Talk Strategy
Whether you’re refinancing, buying your first home, growing your business, or rebalancing your investment approach — now is the time to review your financial position and explore your options.
At AFP Finance & Loans, our lending specialists are here to help you navigate the market with confidence. Get in touch today to see what this rate cut could mean for you.
