RBA expected to give mortgage holders ‘breathing capacity’ on interest rates​on February 17, 2025 at 2:00 pm

But business shouldn’t hold its breath for any immediate effect interest rate cuts might have on spending habits – which can take up to nine monthsFollow our Australia news live blog for latest updatesGet our breaking news email, free app or daily news podcastThe Reserve Bank is expected to provide “breathing capacity” to households with mortgages by cutting the official cash rate for the first time since the early days of the Covid pandemic.The market is pricing in a 90% chance of a 25 basis point decrease on Tuesday, according to the ASX’s rate indicator, although several economists have warned they expect the decision to be closer than the odds suggest.Sign up for Guardian Australia’s breaking news email Continue reading…But business shouldn’t hold its breath for any immediate effect interest rate cuts might have on spending habits – which can take up to nine monthsFollow our Australia news live blog for latest updatesGet our breaking news email, free app or daily news podcastThe Reserve Bank is expected to provide “breathing capacity” to households with mortgages by cutting the official cash rate for the first time since the early days of the Covid pandemic.The market is pricing in a 90% chance of a 25 basis point decrease on Tuesday, according to the ASX’s rate indicator, although several economists have warned they expect the decision to be closer than the odds suggest.Sign up for Guardian Australia’s breaking news email Continue reading…   

The Reserve Bank is expected to provide “breathing capacity” to households with mortgages by cutting the official cash rate for the first time since the early days of the Covid pandemic.

The market is pricing in a 90% chance of a 25 basis point decrease on Tuesday, according to the ASX’s rate indicator, although several economists have warned they expect the decision to be closer than the odds suggest.

Former RBA board member Warwick McKibbin said there would probably be a cut, despite it rubbing against his view of what the central bank should do.

• Sign up for Guardian Australia’s breaking news email

“Given the uncertainty in the global economy and the fact that core inflation is outside the target band, I think the RBA should hold,” said McKibbin, who is now the director of the Australian National University’s centre for applied macroeconomic analysis.

“However, given the direction of change in the recent inflation data, they will probably cut.”

A 25 basis point decrease to a mortgage would save a household with a $750,000 loan $115 a month, according to analysis by Canstar.

Moses Samaha, the executive general manager at credit reporting agency Equifax, said the impact of a cut could take up to nine months to lead to changed spending habits, given people are grappling with so many other high living costs.

“A rate cut would just provide some breathing capacity to cover everything else,” Samaha said. “In terms of really seeing that step change, we’re saying it’s going to be in that six- to nine-month range.”

Equifax data shows that historically it takes up to six months for rate cuts to fuel a change in spending behaviour.

The official cash rate has sat at an elevated 4.35% since November 2023 during a period of high inflation and fast-rising living costs. The last rate cut occurred in November 2020 as part of a policy to stimulate the then-pandemic-stricken economy.

Economists who expect a rate decrease usually point to the falling consumer price index as evidence that elevated borrowing rates are no longer needed. Those who want the RBA to hold refer to the strong jobs market, which they say doesn’t require stimulus, and the potential for inflation to reignite.

A rate cut would provide momentum for the Labor government heading into an election fought on competing cost-of-living policies. If the RBA surprises the market by holding rates steady, the Coalition would have ammunition to argue that the government has not managed inflationary pressures well enough to bring rate relief.

Charu Chanana, the chief investment strategist at Saxo, said the RBA could deliver a rate cut with “hawkish” comments, referring to policymakers who favour elevated rates to cap inflation.

“The potential scenario here is that, even with a 25 basis point cut, the RBA will maintain a very cautious, very hawkish tone,” Chanana said.

“Plus, the market is currently pricing in three cuts in 2025, which seems a bit excessive, so the RBA will need to bring that down.”