Real-time analysis and impact assessment of Australia's monetary policy
Historical Rate Trend
RBA Cash Rate Target over time
Previous RBA Cash Rate Target4.10%
“RBA credibility management, awaiting Q1 inflation data, and global trade uncertainties”
The RBA is highly likely to hold rates at 4.10% on April 1, 2025, with an 88-92% probability of maintaining current rates. Key factors include stubborn trimmed mean inflation at 2.7%, recent labor market softening, and the RBA's desire to assess the impact of February's rate cut before further easing. Markets and all major banks expect a hold, with potential for a cut in May after Q1 inflation data is released.
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Certain key economic factors influence rate cuts. Learn the current stats here
Inflation (CPI)Consumer Price Index, annual change
2.54.2%
UnemploymentSeasonal Adjusted
4.12.5%
GDP GrowthYear-on-year
1.362.5%
Wage GrowthWage Price Index, annual change
3.2-8.6%
Housing PricesYear-on-year change in capital cities
2.0-13.0%
AUD/USDAustralian Dollar to US Dollar
0.6300.000%
Impact and opportunities
Founder
Updated on 26 Apr 2025
In February 2025, the Reserve Bank of Australia (RBA) cut the official cash rate by 25 basis points to 4.10%, marking its first rate reduction since November 2020. The move, which aligned with market expectations, reflects growing confidence that inflation is easing towards the RBA's target range of 2-3%.
The RBA's February 2025 decision to cut the cash rate was rooted in a noticeable slowdown in underlying inflation, which was moving sustainably toward the target range of 2-3%. Higher interest rates had previously played a critical role in balancing aggregate demand and supply. However, lingering uncertainties remain, including a slower-than-expected rebound in private demand and concerns about the sustainability of household spending recovery that began in late 2024.
Australia’s cash rate landscape has seen dramatic shifts over the years. Rates peaked at 17.50% in January 1990 and fell to a record low of 0.10% during the pandemic in 2020. The current rate of 4.10% sits slightly above the long-term average of 3.87% (from 1990 to 2025).
Despite the recent cut, this still indicates a relatively restrictive monetary policy stance. The RBA remains cautious, given global economic uncertainties and the need to ensure inflation continues to decline sustainably.
A cash rate cut typically lowers interest rates in the economy. For borrowers, this generally means cheaper loans. Mortgage, personal loan, and credit card interest rates often decrease, making repayments more affordable. This can be a relief for those with variable-rate loans or those looking to borrow.
For savers, a cash rate cut can be less favorable. Banks tend to reduce interest rates on savings accounts, term deposits, and other investments. This means savers may earn less on their deposits, impacting their returns.
For home loan borrowers, a cash rate cut usually means lower interest rates. This is great news for those with variable-rate mortgages, as their monthly repayments will typically decrease. Here's how it can benefit you:
However, it's essential to keep in mind that a rate cut might not always guarantee a reduction in your repayments. Banks may choose not to pass on the full cut, so it's worth keeping an eye on any changes.
Further, those on a fixed rate loan won’t see any change in their repayments until their fixed term ends or they choose to refinance. Their interest rate and repayments stay the same regardless of cash rate movements, which can be helpful for budgeting—but it also means they won’t benefit from any rate cuts during that period.
While a cash rate cut is good news for borrowers, it often means lower returns for savers. Here’s what you can expect:
Reduced interest on savings: Banks tend to lower the interest rates on savings accounts, term deposits, and other investments following a cash rate cut. This means you'll earn less on your savings.
Less reward for long-term deposits: Term deposits may offer lower interest rates, which can reduce the appeal of locking away your money for an extended period.
May want to consider other savings options: With traditional savings accounts offering lower returns, some savers may look into alternatives like shares, bonds or managed funds. Some of these options carry higher risk, so it’s important to consider your risk appetite before making any changes.
If you're a saver, a cash rate cut may mean reassessing your strategy to ensure your money continues working for you.
Every month, the Reserve Bank of Australia (RBA) meets to assess the country's economic landscape and decide whether to adjust the official cash rate. These monetary policy decisions are pivotal—they influence borrowing costs, spending habits, and even the broader direction of Australia's economy.
But how does the RBA arrive at these critical decisions? We understand this to be a process grounded in data, caution, and a deep understanding of both local and global economic trends.
At the heart of the RBA's decision-making process is its dual mandate:
To achieve these goals, the RBA conducts a thorough analysis of key economic indicators, including:
The Reserve Bank of Australia (RBA) plays a crucial role in managing the economy by setting the official cash rate. Its goal is to ensure economic stability by keeping inflation within the 2–3% target range while also supporting employment and growth.
Each month, the RBA assesses a range of economic indicators before deciding whether to raise, lower, or hold the cash rate. Here's how these factors influence its decision-making process.
Inflation measures how much the cost of goods and services increases over time. The RBA aims to keep inflation steady within 2–3%, as this balance supports economic growth without reducing purchasing power.
If inflation rises too quickly, it can make essentials like housing and groceries unaffordable. The RBA may increase the cash rate, making borrowing more expensive and encouraging people to save rather than spend, slowing inflation.
If inflation falls too low, businesses may struggle to grow, leading to job losses. The RBA may cut the cash rate, making borrowing cheaper and encouraging spending to stimulate the economy.
Recent RBA rate hikes, for example, were a response to high inflation following the pandemic, while the February 2025 cut reflected a slowdown in price increases.
GDP represents the total value of all goods and services produced in Australia. It indicates whether the economy is expanding or contracting.
If GDP is growing too fast, the economy risks overheating, leading to inflation. The RBA may raise rates to slow excessive borrowing and investment.
If GDP is slowing down, businesses may cut jobs, and consumer spending may decline. The RBA may lower rates to encourage investment and stimulate growth.
For example, during the 2020 recession, the RBA slashed rates to near-zero levels to boost economic activity.
The RBA closely watches employment levels and wage growth, as both impact consumer spending and inflation.
If unemployment is high and wages are stagnant, people spend less, weakening the economy. The RBA may cut rates to support job creation.
If wages grow too fast, businesses may struggle with rising costs, pushing inflation higher. The RBA may increase rates to prevent excessive price increases.
The February 2025 rate cut, for instance, was influenced by softer wage growth, giving the RBA confidence that inflationary pressures were easing.
Consumer spending is a key driver of economic growth. If people are spending too much, businesses raise prices, leading to inflation. If they cut back, businesses lose revenue, potentially leading to job losses.
If consumer spending is too strong, the RBA may raise rates to encourage saving and cool demand.
If spending is too weak, the RBA may cut rates to make borrowing cheaper and stimulate demand.
The Australian economy is also influenced by global markets. Key factors such as interest rate decisions by the US Federal Reserve, trade relations with China, and geopolitical developments play a crucial role in shaping local economic performance.
When global markets weaken, the RBA may lower rates to cushion the impact on Australia's economy. For example, during periods of global economic uncertainty or downturns, easing monetary policy can help stimulate domestic demand and maintain economic stability.
If international economies show robust growth, the RBA may increase rates to align with global financial conditions and manage inflationary pressures domestically.
The RBA carefully monitors these external factors alongside domestic indicators to ensure Australia remains competitive and resilient in an ever-changing global environment.
Comparison sites show lists of rates, but they don't tell you what's right for you. Manually checking offers, tracking changes, and figuring out the best option can be time-consuming and overwhelming.
That's where Bheja AI comes in.
Simply connect your mortgage account, and Bheja will analyse your loan, track market changes, and suggest ways to save—whether through refinancing, adjusting repayments, or switching to a better rate.
Chat with Bheja to get real-time insights, personalised recommendations, and smarter ways to manage your home loan—without the hassle of manual comparisons.
Founder
Pravin Mahajan is a seasoned technology leader with deep expertise in financial innovation and product strategy. He focuses on leveraging AI and automation to streamline financial processes, making them more accessible and efficient. Passionate about digital transformation, Pravin drives innovation in fintech, helping businesses and consumers adapt to an evolving financial landscape. His insights on technology, finance, and product strategy are widely recognised in industry forums.
