Optimizing Your Strategy for RBA Rate Cuts

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Mortgage holders have faced a steady cash rate target of 4.35 per cent since November 2023, amid rising rents and insurance premiums.

The Reserve Bank of Australia (RBA) is set to meet on Tuesday, with expectations of a rate cut , including the trimmed mean, which measures underlying inflation, easing to an annual rate of 3.2 per cent.

The RBA has said it would consider lowering the rate if inflationary pressures ease, a condition.

A stylised image showing the number of cash rate cuts expected by banks in 2025.

Major Australian banks are expecting the RBA to announce a cash rate cut on Tuesday. Credit: (AAP Image/Joel Carrett)

David Bassanese, chief economist at Betashares, an exchange-traded funds provider, is one of those tipping a rate reduction.

“To not cut rates this week would effectively renege on a promise to deliver interest rate relief once there was sufficient progress on lowering inflation,” he said.

“It would break the hearts of millions of Australians and undermine the RBA’s still tarnished public reputation.”

How far could rates fall?

When adjusting the cash rate target, the RBA typically makes changes of 0.25 per cent.

Following this pattern, a rate cut on Tuesday could set the new target at 4.1 per cent.

Bassanese endorses an even larger drop.

“I’d like to see the RBA cut rates by 0.35 per cent to 4.0 per cent so we can finally get the cash rate cut back to cleaner 0.25 per cent level increments,” he said.

Will banks pass on the rate cut to customers?

Sally Tindall, data insights director at the financial comparison site Canstar, told SBS News a rate cut is a good reminder to check in with your bank and ask if they will pass along the potential rate reduction.

“A cash rate cut is a fantastic time to look at your mortgage rate, ask your bank whether they’re dropping that variable rate,” she said.

While there’s no guarantee the banks will pass on potential cash rate savings, Tindall predicted a flow-on effect to mortgages.

“We expect the banks to play ball for at least the first couple of cash cuts and to pass it on to their variable borrowers in full,” she said.

“They tend to pass on rate changes within 10 to 14 days of an RBA announcement.”

Impact on your fixed mortgage

Tindall said a fixed-rate mortgage is “pretty much set”, but you still have options.

“If the bank incorporates a loss because you’ve broken your fixed-rate contract, they are able to charge you for that loss because a fixed rate is a contract between you and the bank that you’ve got to pay a certain rate of interest over a set period of time,” she said.

“If you don’t like the fixed rate that you’ve locked into, it’s well worth having that conversation with your bank to understand if you’d be up for break fees.

“If so, what they would look like and whether the bank would be willing to negotiate and waive any break fees that might come your way.”

Should you move to lower repayments?

Banks may allow mortgage holders to switch to lower repayments, saving them money in the short term, but this might not be in their best interest.

Graham Cooke, head of consumer research at comparison site Finder, explained paying more now can reduce the total amount you owe in the long run.

“My main piece of advice is — don’t automatically jump on the lower repayments option,” he told SBS News.

“If you can afford it, keep the higher repayments. Each time you do that after the rate drops, it will shave about a year off your mortgage, over 30 years.”

How can you negotiate with your bank?

Cooke suggested shopping around to see if you are getting the best deal, which can also give you leverage with your current lender.

“The provider offering the lowest rate is always shifting, so being on top of the market and willing to be flexible could mean you are always in the best value option,” Cooke said.

“A simple call along the lines of ‘I now have the option to switch to another lender for 1 per cent less’ will, more often than not, force your bank to offer you an alternative. If they don’t, then you should switch.

“In the modern market, loyalty does not pay.”

Can renters negotiate their rent?

Renters are in a “trickier situation” at the negotiation table, but Cooke said landlords might be willing to reduce the rent in a competitive market.

“Interest rates going down is not an argument landlords or agents will typically accept for a rent reduction, unfortunately,” he said.

“Instead, you’re better off keeping an eye on rental listings around you and finding examples of similar properties that have lowered their rent.

“Present these to your landlord as evidence that you are paying too much and that they may struggle to find a replacement tenant willing to pay the same.”

Tenants Union of NSW CEO Leo Patterson Ross said renters would have to wait some time before experiencing financial relief.

“Generally, falling rents only show up when a tenant leaves, so unless the renter becomes aware, they may be able to find a better deal elsewhere and either leave or attempt to negotiate the rent,” he said.

“It’s worth noting that approximately one in four landlords have no mortgage at all, and so aren’t impacted at all by rate changes.”

The information in this article is general in nature and is not intended as financial advice. You should consult with a licenced professional to make the decisions that are right for you.