If you’re a homeowner with a mortgage, you’ve probably been watching the Reserve Bank of Australia (RBA) like a hawk, hoping for some relief from those stubbornly high interest rates.
After all, every little bit helps when it comes to the monthly budget, especially with the cost of living still biting.
But before you start planning how you’ll spend the extra cash from a potential rate cut in July, Westpac has a word of caution: don’t count your chickens just yet.
The rate cut rollercoaster: What’s really going on?
The latest inflation figures have given many Australians a glimmer of hope. The Consumer Price Index (CPI) for the 12 months to May 2025 rose by just 2.1 per cent, lower than the expected 2.3 per cent.
Even more encouraging, the trimmed mean inflation rate—a key measure the RBA uses—came in at 2.4 per cent, its lowest level since late 2021.
On the surface, this seems like a green light for the RBA to start cutting rates sooner rather than later.
Money markets are certainly optimistic, with traders now betting there’s an 89 per cent chance of a rate cut in July.
Commonwealth Bank’s senior economist Belinda Allen has even updated her forecast, now expecting the RBA to move in July, saying, ‘Today’s monthly CPI print capped off a flow of data that should provide comfort to the RBA that a swifter return of the cash rate to neutral is both manageable and needed.’
Westpac’s warning: Not so fast
But Westpac’s chief economist, Luci Ellis, is urging caution. While she acknowledges the softer inflation numbers strengthen the case for a rate cut, she’s not ready to call it a sure thing.
‘The June quarterly inflation numbers are still likely to print on the high side, so some caution on the inflation outlook is likely and warranted,’ she wrote in a recent economic note.
In other words, one good month doesn’t make a trend, and the RBA is unlikely to make a snap decision based on a single data point.
Ms Ellis also points out that the RBA’s current stance is deliberately ‘cautious and predictable.’ For the central bank to move more quickly, its own forecasts would need to shift significantly.
‘We expect that the inflation evidence will overtake the RBA’s thesis of domestic tightness over time. But we do not think they are going to start singing from an entirely different song sheet just yet,’ she said.
What does this mean for your mortgage?
If you’re hoping for a rate cut to ease your mortgage repayments, the good news is that Westpac still expects four rate cuts between now and May next year.
That would bring the cash rate down from its current 3.85 per cent to 2.85 per cent—a full percentage point lower.
If this prediction holds, households could see a total of six rate cuts from the start of the cycle, when rates peaked at 4.30 per cent.
But the timing is still up in the air. While July is looking more likely, it’s not a done deal. The RBA is still weighing several factors, including the tight labour market, sluggish productivity growth, and the potential for prices to rise again as demand recovers.
As Ms Ellis puts it, expect ‘noncommittal, even grudging, language’ from the RBA after its next meeting.
Why is the RBA so cautious?
It’s worth remembering that the RBA’s job isn’t just to make life easier for mortgage holders. Its main goal is to keep inflation in check while supporting sustainable economic growth.
If it cuts rates too soon, there’s a risk that inflation could flare up again, undoing the hard work of the past couple of years.
On the other hand, if it waits too long, it could stifle growth and make life even harder for households and businesses.
The RBA is also keeping a close eye on the jobs market. Unemployment remains low, which is usually a good thing, but it can also put upward pressure on wages and prices.
Add in slow productivity growth and the unpredictable effects of global events, and it’s clear why the central bank is treading carefully.
What should homeowners do now?
If you’re feeling anxious about your mortgage, you’re not alone. Many Australians are in the same boat, waiting for some relief.
While it’s tempting to pin your hopes on a July rate cut, it’s wise to prepare for all scenarios. Review your budget, look for ways to trim expenses, and consider talking to your lender about your options.
If rates do come down, you’ll be in a better position to take advantage of the extra breathing room.
And remember, even if the RBA doesn’t move in July, most experts agree that rate cuts are on the horizon. It’s just a matter of when, not if.
Join the conversation
Are you hoping for a rate cut in July? How are rising interest rates affecting your household budget? Have you made any changes to your spending or mortgage strategy? We’d love to hear your thoughts and tips—share your experiences in the comments below!
Also read: Westpac’s surprising $350 windfall prediction: Are rate cuts coming?
