The financial forecast for Australian households looks to be a mixed bag in the coming months. While the Reserve Bank of Australia (RBA) is anticipated to initiate a cut in interest rates, experts warn that the full benefits of such a move may not be felt until November. This delay in economic relief is a crucial factor for seniors and retirees who are often on fixed incomes and particularly sensitive to fluctuations in interest rates.
The cash rate target, which has been sitting at 4.35 per cent since November 2023, is expected to be reduced to 4.10 per cent following the RBA’s upcoming meeting. However, according to new research from Equifax, it could take anywhere from six to nine months for the positive effects of this cut to permeate through to households and the broader economy.
Moses Samaha, Equifax executive general manager, emphasises the importance of the RBA’s decision-making process, which must account for the long-term impact on household debt and credit behaviour. The anticipated economic boost from the rate cut won’t be immediate, and consumer confidence, as well as inflation data, will play a significant role in the RBA’s deliberations.
Looking at international examples, such as Canada and New Zealand, which both increased rates more rapidly than Australia and began reducing them seven months earlier, we can see that improvements in mortgage demand are starting to emerge. However, the trickle-down effect is slow, and it’s clear that other factors are also affecting consumer and SME confidence.
AMP chief economist Shane Oliver concurs with this assessment, suggesting that it could take six to twelve months for households to fully experience the impact of a rate cut. He recalls the rate hikes of 2022, noting the lag before the economy responded to those changes. Banks may take time to pass on the cuts to customers, and homeowners may not immediately notice an improvement in their bank accounts.
While a rate cut could instil some confidence in the property market, it typically requires multiple reductions before a significant impact on the economy is observed. This sentiment is echoed by Commonwealth Bank chief executive Matt Comyn, who acknowledges the expectation of customers for interest rates to be passed on in full.
For the average Australian with a $666,000 mortgage at 6.24 per cent and 30 years remaining, a rate cut in February could mean a savings of $107 a month, according to Canstar data. However, the financial markets are still grappling with uncertainty, particularly in light of US President Donald Trump’s proposed steel and aluminium tariffs, which could have a ripple effect on the Australian economy.
BDO partner Anders Magnusson points out that markets favour certainty, and the surprise tariffs introduced by Trump create an additional risk for the RBA to consider. The potential for a global tariff war adds another layer of complexity, potentially causing the RBA to delay its rate cut.
Despite these uncertainties, the money markets still predict a 90 per cent chance of a rate cut in February, slightly down from 93 per cent earlier in the week. Independent economist Saul Eslake believes that the Trump tariffs are unlikely to deter the RBA from cutting rates in February and anticipates three cuts by August, although he notes the mixed signals affecting the Australian dollar.
What are your thoughts on the potential rate cut? Will it make a difference for your household, or do you think it will take longer to feel any change? Are you concerned about other economic factors, such as global tariffs, affecting your financial plans? Share your thoughts with us in the comments below! Let’s discuss how you’re preparing for the months ahead.
Also read: Commonwealth Bank’s possible RBA interest cut: Here’s how much you could save on repayments
