For many Australians, the Reserve Bank of Australia’s (RBA) monthly interest rate decision is more than just a headline.
It’s a direct line to the family budget, the size of the mortgage repayment, and even the dream of a comfortable retirement.
While recent talk has focused on long-awaited rate cuts, a leading economist is warning that the window for relief may be closing faster than we think—and that rate hikes could soon be back on the table.
A brief reprieve—but for how long?
Earlier this year, the RBA delivered its first cash rate cut in more than four years, trimming the official rate by 25 basis points to 4.10 per cent.
Today, the RBA also announced a further 0.25 basis point decrease, bringing the prevailing interest rate to 3.85 per cent.
For mortgage holders, it’s a welcome—if modest—relief after a relentless series of hikes that saw repayments soar and household budgets stretched to breaking point.
But according to Warren Hogan, chief economic advisor at Judo Bank and managing director of EQ Economics, this may be as good as it gets for a while.
Hogan told the Australian Financial Review prior to the RBA’s rate cut announcement that while another 25 basis point cut was likely, the case for further cuts is rapidly fading.
‘We will probably get one this week, but in the absence of a tariff-induced global shock, we are unlikely to see any more cuts after that,’ Hogan said.
‘Indeed, the natural rhythm of the economic cycle suggests rate increases could be back in play before too long.’
Why are further cuts unlikely?
Despite the RBA’s cautious optimism, several factors are making it difficult for the central bank to justify further rate reductions:
Stubborn inflation: While underlying inflation has eased to 2.9 per cent—within the RBA’s 2 to 3 per cent target band—it remains at the upper end. The RBA is wary of cutting rates too aggressively and reigniting price pressures, especially with global uncertainties still looming.
Resilient jobs market: The unemployment rate has held steady at 4.1 per cent, with a surprising 89,000 new jobs added in April alone. This tight labour market is keeping wage growth elevated (currently at 3.4 per cent), which in turn can fuel inflation.
Strong consumer spending and property prices: Retail sales have remained robust, and house prices are rebounding in many parts of the country. These signs of economic strength reduce the urgency for further stimulus.
Russel Chesler, head of investments at VanEck, summed it up: ‘With continuing low unemployment rate and wage growth having accelerated to 3.4 per cent, further falls in inflation will be limited—there is actually a risk of inflation increasing.’
Could rates actually go up again?
It might sound unthinkable after the pain of the past two years, but Hogan and other experts warn that if inflation starts to creep up again, or if the economy overheats, the RBA could be forced to reverse course and start hiking rates once more.
The RBA has signalled it will wait for ‘hard evidence’ in the data before making any big moves, but as Hogan points out, the central bank’s actions have been ‘transparent but late’ in recent years.
That means mortgage holders and retirees living off savings need to be prepared for the possibility of higher rates down the track.
What does this mean for homeowners and retirees?
For those with a mortgage, the prospect of further rate cuts is welcome news—but it’s far from guaranteed.
If you’re hoping for significant relief on your repayments, it may be wise to temper your expectations and plan for a scenario where rates stay higher for longer, or even rise again.
For retirees and those relying on savings, higher interest rates can be a double-edged sword. On one hand, term deposit and savings account rates may improve, offering better returns.
On the other, higher rates can put downward pressure on property values and increase the cost of living, especially if inflation rears its head again.
What should you do now?
Review your budget: Make sure you’re not overextending yourself based on the hope of lower rates. Factor in the possibility that rates could stay where they are—or even rise.
Consider fixing your mortgage: If you’re worried about future hikes, now might be a good time to look at fixed-rate options, though be aware that fixed rates can sometimes be higher than variable rates.
Shop around: Don’t be afraid to negotiate with your lender or look for a better deal elsewhere. Even a small reduction in your interest rate can make a big difference over time.
Stay informed: The economic landscape is shifting rapidly. Keep an eye on RBA announcements and expert commentary to stay ahead of any changes.
Looking ahead: What are the experts predicting?
Most of the Big Four banks expect a 25 basis point cut in the near term, with some, like NAB, even forecasting a larger 50 basis point move.
However, the majority of economists surveyed by Finder believe that two or more cuts over the next 12 months is possible—but far from certain.
As Chesler notes, ‘For further cuts to occur this year we will need to see a change in the economic landscape, particularly on the employment front.’
Have your say
Are you a homeowner or retiree feeling the pinch from high interest rates? Are you hoping for more cuts, or are you worried about the prospect of rates rising again?
How are you managing your finances in this uncertain environment? Share your thoughts and experiences in the comments below—your story could help others in the YourLifeChoices community navigate these challenging times.
And as always, stay tuned to YourLifeChoices for the latest updates, expert advice, and practical tips to help you make the most of your money, whatever the RBA decides next.
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