By
The Reserve Bank of Australia slashed the official cash rate (OCR) on Tuesday by 25 basis points, or 0.25%, to 4.10%.
The long-awaited cash cuts come as a welcome relief to Australian mortgage holders, many of whom have been crunched amid a rising cost of living and higher-for-longer rates.
But how much will the deductions actually impact consumers, and subsequently brokers?
"A 25-basis point cut is unlikely to have a major impact on the Australian economy," Adelaide Timbrell, senior economist at ANZ Research, told Australian Broker. "However, it does boost household incomes by giving them more cash and it books consumer confidence."
Timbrell said ANZ anticipates that the central bank will likely hold rates at the next two meetings, before knocking an additional 25 basis points off rates.
"We think the [RBA] will cut once more [for the year], likely in August, after the Q2 inflation data is released and they have time to look at it," she said.
Still, the slight rate reduction caused a flood of excitement to hit the market, with some going so far as to predict two more rate cuts for the year.
But Michele Bullock, governor of the RBA, warned reporters at a press conference Tuesday evening that the market chatter was highly optimistic.
"I want to be very clear that today's decision does not imply that further rate cuts, along the lines suggested by the market, are coming," Bullock said. "Our feeling at the moment is [three rate cuts this year] is far too many rate cuts that we'll be having.
"I can't say we're one and done," she continued. "What I can say is that we've done one, we've removed a bit of restrictiveness — and we are still restrictive — and [now] we are waiting for more evidence that we're getting inflation sustainably back in the ban before we are willing to move again."
Notwithstanding, lenders and borrowers alike were in good spirits Tuesday evening, following the RBA's decision.
Jason Yetton, Westpac chief executive, consumer, predicted that the reduced rates will save borrowers with a $500,000 loan more than $1,000 a year.
"Today's decision will be welcome news for mortgage customers," he said in a statement.
In addition to increasing cash on hand and borrowing capabilities, Adam Brown, executive, broker distribution at NAB, added that the central bank's decision demonstrates that "the RBA is confident that inflation is coming under control and our economy is in good shape."
The evolving role of the broker will be even more important is the new, lower interest rate environment, said Anja Pannek, chief executive officer of the Mortgage & Finance Association of Australia (MFAA).
The lower rates will lead to more borrower inquiries, and in turn, more business for brokers, she said.
"For brokers there remains [a] continued opportunity to support clients," Pannek said. “Clients will be relying on their mortgage broker to help them navigate their lending options, whether that’s securing a new loan for their first home, getting a better deal with their current lender or refinancing.
"Australians know they can rely on highly-skilled brokers to educate and guide them through a complex market so they can move closer to reaching their financial goals," she added.
NAB's Brown added that the bank is optimistic for the year ahead. "The changes we're seeing strongly reinforce the vital role that brokers play in helping customers navigate the home loan market."
Mark Jones, chief executive officer at non-bank lender Bluestone Home Loans, said the updated rates are an opportune time for brokers to check in with existing clients, in addition to helping new ones.
"The rate cut is a win for borrowers feeling the pinch of rising living costs, while others may use this opportunity to get ahead and pay down their loan faster," he said. "And the cut brings greater serviceability, opening doors for more Australians to achieve their homeownership dreams."
Despite the wave of optimism that washed over the market Tuesday afternoon, the RBA remains cautious in its outlook.
In its statement regarding the rate cuts, the RBA cited slower-than-expected economic growth, inflation, employment and wage pressures and geopolitical risks, particularly Stateside, as continued concerns.
"Growth in output has been weak, private domestic demand is recovering a little more slowly than earlier expected, and there is uncertainty around the extent to which the recovery in household spending in late 2024 will persist," the RBA's statement read. "Wage pressures have eased a little more than expected, housing cost inflation is abating and businesses in some sectors continue to report that it has been hard to pass on cost increases to final prices.
"There are notable uncertainties about the outlook for domestic economic activity and inflation," the RBA statement continued. "The central projection is for growth in household consumption to increase as income growth rises. But there is a risk that any pick-up in consumption is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market than currently projected. Alternatively, labour market outcomes may prove stronger than expected, given the signal from a range of leading indicators."
At the press conference, Bullock acknowledged that the board was torn over whether to reduce rates.
"It was a difficult decision, in the sense that there were arguments on both sides," she explained. "In the end, [the board] came to the view that the better decision was to ease a little bit of the restrictiveness. Still maintain some restrictiveness, ease a little bit of restrictiveness in recognition that we are making progress towards our goal.
"The board needs more data and evidence that inflation is continuing to decline before making decisions about the future path of interest rates," Bullock continued. "The board is very alert to upside risks that could derail the deflationary process. "As I've said before, It's really important that we beat inflation. Because that hurts absolutely everyone."
Meanwhile, following the RBA's announcement on its benchmark interest rates, a number of lenders said they would pass rate cuts through to their variable rate borrowers. The list includes all four of Australia's Big Four banks — Westpac, ANZ, Commonwealth Bank and National Bank of Australia (NAB) — which plan to lower home loan variable interest rates by 0.25% per annum. ANZ, Commonwealth and NAB's reduced rates start February 28, while Westpac's go into effect March 4.
In addition, non-bank lender Bluestone Home Loans also said it would pass along the 0.25% p.a. rate cut across all variable home loans, effective immediately.
