Australia’s central bank is expected to implement its third interest rate cut this year at its upcoming policy meeting, a move that could offer financial relief to millions of borrowers. The anticipated decision by the Reserve Bank of Australia (RBA) comes as households continue to struggle with high mortgage repayments and the broader effects of elevated living costs.
Despite expectations of a 0.25 percentage point cut, bringing the cash rate down to 3.60% from the current 3.85%, uncertainty surrounds whether commercial banks will pass on the savings to customers. Past behavior from lenders suggests a trend of holding back rate reductions in the later stages of easing cycles, prompting questions about how much borrowers will actually benefit.
Potential Relief for Borrowers Under Strain
The expected July rate cut follows two reductions earlier in 2025, both of which were mostly passed on quickly by major lenders. In February, banks responded within minutes of the RBA’s announcement. The May cut was met with similar responsiveness, though a few banks took longer to implement changes.
Analysts estimate that a 0.25% cut could deliver around $90 in monthly savings for mortgage holders. Sally Tindall, Director of Data and Insights at Canstar, emphasized that borrowers remain under considerable pressure and need the relief. She noted that although net interest margins are tight, banks are still reporting profits and could choose to support their customers.
Banks Less Likely to Pass on Future Cuts
While early-stage cuts in a cycle are typically passed on to borrowers, the trend tends to shift over time. Rachel Wastell, a finance expert from Mozo, explained that historical data shows a decreasing likelihood of banks transferring full cuts as the easing cycle progresses.
Between 2015 and 2020, the RBA delivered ten rate cuts. During that period, Commonwealth Bank, NAB, and ANZ each passed on four, while Westpac passed on only two. The reluctance is often attributed to the need for banks to protect profit margins amid falling interest income.
RBA interest rate cut warning for millions over $90 monthly relief expected next week: 'Holding back' https://t.co/91AHAsm5Jq
— Yahoo Finance Australia (@YahooFinanceAU) July 1, 2025
Consumer Sentiment Remains Cautious
According to a Yahoo Finance poll of 13,677 readers, 67% of respondents said they would need at least four rate cuts to feel financially secure. This sentiment underscores the ongoing financial strain on Australian households, many of which are still adjusting to the high interest rates imposed throughout 2022 and 2023.
While any relief is welcome, expectations remain high, and many borrowers are bracing for a slow or partial transmission of the RBA’s potential policy changes. The public’s cautious outlook reflects both past experiences and current economic uncertainty.
Split Expectations Among The Big Four Banks
Although economists and market watchers widely anticipate a July cut, Australia’s four largest banks—Commonwealth Bank, NAB, Westpac, and ANZ—are not aligned on the longer-term outlook. All agree there may be more rate cuts ahead, but estimates vary on how many and how quickly they might be implemented.
The central question remains whether the banks will continue to pass on future rate reductions or begin to retain a greater share to preserve their margins. The July decision is likely to provide further insights into how banks will approach the remainder of 2025’s monetary policy changes.
