Australia’s largest bank, Commonwealth Bank, has revised its outlook for the Reserve Bank of Australia’s (RBA) interest rate decisions, now forecasting two consecutive rate cuts in the coming months. This shift comes on the back of easing inflation figures, with significant implications for the country’s mortgage holders.
The expected rate reductions in July and August could provide much-needed relief for homeowners facing high mortgage repayments. As the RBA evaluates its monetary policy, the decision will be closely watched, with the potential for broader economic impacts, including changes to consumer spending and financial market activity.
Inflation Figures Prompt Change in Rate Cut Forecasts
The latest inflation data for May revealed a decline in headline inflation to 2.1%, down from 2.4% in April. This drop in inflation is seen as a key indicator that the RBA may have room to ease its monetary policy. In response, Commonwealth Bank now predicts that the RBA will reduce interest rates by 0.25% in both July and August, with the first cut potentially occurring as early as next month.
Initially, the bank had expected a rate cut to take place only in August. However, following the improved inflation figures, they revised their forecast, suggesting that the RBA may act sooner than anticipated. A reduction of 0.25% at both meetings would bring the cash rate down to 3.35%, a level more consistent with neutral monetary policy.
Potential Relief for Mortgage Holders
For millions of Australians with mortgages, these predicted rate cuts could provide significant financial relief. A reduction of 0.25% in the interest rate would lower monthly repayments for a typical $600,000 mortgage by approximately $178. This would ease the pressure on many households that have been grappling with rising mortgage costs due to earlier rate hikes.
Given the rising cost of living, the prospect of lower interest rates is a welcome sign for borrowers who may have been feeling the strain. These cuts could provide some breathing room for homeowners, particularly as inflation continues to decline and economic conditions evolve.
Commonwealth Bank changes RBA interest rate cut call in huge win for mortgage holders https://t.co/oJd4aHM3El
— Yahoo Finance Australia (@YahooFinanceAU) June 25, 2025
Financial Market Reactions
The financial markets have also adjusted their expectations in response to the new inflation data. Traders now see an 88% chance of a rate cut in July, reflecting broader confidence that the RBA will act sooner than initially predicted. Some economists even suggest that the RBA could deliver a larger-than-expected rate cut of 0.50%, given that inflation is now well below the midpoint of the RBA’s target range.
Economist Stephen Koukoulas highlighted that inflation is falling rapidly, and monetary policy remains restrictive despite earlier rate cuts. He argued that a more substantial reduction could be justified to support economic growth without triggering inflationary pressure.
Experts Weigh in on Rate Cuts
Leading economists have largely supported the idea of further rate cuts. Brendan Rynne, Chief Economist at KPMG, stated that a 0.25% reduction would be warranted in light of the ongoing weakness in the private sector of the Australian economy. He noted that such a move would likely not lead to excessive inflationary pressures.
While some experts have suggested that more significant rate cuts are needed to stimulate economic activity, others caution that the RBA must tread carefully, given the potential long-term effects of rapid policy changes. The RBA’s upcoming decisions will likely depend on an ongoing assessment of the economy and inflation trends.
