Finder’s RBA Survey: 3 in 4 experts tip a cash rate cut

Aussie homeowners could be in for some much needed mortgage relief with the majority of experts predicting a rate cut from the RBA at its first meeting of the year.

In this month's Finder RBA Cash Rate Survey™, 37 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

Almost 3 in 4 experts (73%, 27/37) believe the RBA will cut the cash rate in February, bringing it to 4.10%.

Graham Cooke, head of consumer research at Finder, said a rate cut would offer a lifeline to thousands of borrowers doing it tough.

"All eyes are on whether the RBA will deliver its first rate cut in 5 years.

"Headline inflation is within the target range, and has been for a while. With trimmed mean inflation falling also, this has heaped pressure on the BRA to cut.

"While most experts are confident the cash rate will finally be slashed, it's not a done deal," Cooke said.

Adj Professor Noel Whittaker from QUT said the reality is the Reserve Bank would rather wait another month than risk moving too soon.

"The problem is inflation in the building industry remains massive, labour shortages are severe, and the job market is still strong – keeping inflationary pressure on the economy.

"Right now, I don't see how a rate cut can be justified, even though I have enormous sympathy for mortgage holders doing it tough.

"It's a sad system when they bear the brunt of the fight against inflation," Whittaker said.

Shane Oliver from AMP is anticipating a rate cut.

"Underlying inflation is falling faster than the RBA expected and has been running around target over the last six months, economic activity is a bit weaker than expected and Trump's trade war poses more risks to Australian growth than inflation," Oliver said.

Cooke said regardless of when the first rate cut arrives, homeowners should use this time to review their mortgage carefully.

"If you're not getting the most competitive rate, why stick with your current lender?

"You can also call your bank to see if they'll offer you a better deal. If they can't help, it might be time to go home loan shopping," Cooke said.

How much the average Aussie homeowner could save

Aussies with the average home loan of $641,416 will save over $100 per month, if the RBA cuts the cash rate by 25 basis points (taking it to 4.10%), and that rate cut is passed on in full by the bank/lender.

These Australians see their mortgage drop from $3,887 per month to $3,784 (a saving of $103).

Those who just purchased a home will save even more. Buyers of Sydney's average home of $1,132,565 with 80% LVR would save $145 monthly, or $1,740 annually.

Buyers of Perth's average home of $724,679 with 80% LVR would save $93 monthly, or $1,116 per year.

More than a third (38%) of homeowners said they struggled to pay their mortgage in January, according to data from Finder's Consumer Sentiment Tracker.

Experts advise against locking in a home loan rate

Fixing a home loan at 4.99% may not be the best move right now, according to the majority of experts.

Despite many big lenders like NAB and Westpac cutting fixed rates, almost 9 in 10 (87%) panellists who weighed in* said they would not advise a friend to lock in their home loan rate at 4.99% (the lowest fixed rate in the market at the time of answering this survey) for 3 years.

Graham Cooke said banks were expecting a rate cut soon.

"Economic forecasts make this pretty clear, and it is evident in their fixed home loan rates which are dropping.

"Fixed rates right now are quite discounted because banks want to lock in your business, but with some predicting 3 rate cuts this year, it might not be the best time to fix," Cooke said.

Trump's tariffs likely to go ahead

The majority of experts (67%, 16/24) believe the Trump administration's proposed tariffs on Canada, Mexico, China and the EU will go ahead.

While some analysts argue the proposed tariffs would put inflationary pressure on many Australian goods, most panellists (75%, 18/24) don't think the RBA will be deterred from lowering rates even if the tariffs are imposed.

*Experts are not required to answer every question in the survey

Here's what our experts had to say:

Stella Huangfu, University of Sydney (Hold): "I think the RBA should leave the interest rate on hold in February. Inflation has only just returned to the target range, so it's probably too early to cut rates. Plus, the job market is still strong, which shows the economy is holding up well."

Sean Langcake, Oxford Economics Australia (Hold): "The February decision will be a very close run. Inflation in Q4 was a little weaker than the RBA expected. But there are still questions about where underlying inflation will be once the impact of subsidies wash out. Services inflation is still looking very strong - a byproduct of the labour market still operating beyond its capacity. The RBA may opt to wait and see how the labour market plays out over the next few months before cutting rates."

Peter Boehm, Pathfinder Consulting (Hold): "The populist view is that the RBA will drop interest rates this month because inflation is coming down. I don't share that view because of the following: 1) inflation has been impacted by government subsidiaries and it is unclear whether the reduction is sustainable. If it's not, reducing rates will be inflationary 2) The strength of the labour market has seen low unemployment rates. You don't reduce rates in these circumstances because they will have an inflationary impact 3) The Australian dollar is weak against the US$ and its major trading partners. A weak $A means imports are more expensive and this is inflationary. Reducing interest rates may further exasperate this position. 4) There is current uncertainty in world trade and financial markets due to the US's position on tariffs. This could have negative impacts on the Australian economy and in such circumstances it would be better to wait and see what these impacts might translate into - reducing rates now would therefore not be a prudent move."

Adj Prof Noel Whittaker, QUT (Hold): "This is a tough call, and I know I'm in the minority by saying rates will stay on hold. But the reality is the Reserve Bank would rather wait another month than risk moving too soon. The problem is inflation in the building industry remains massive, labour shortages are severe, and the job market is still strong—keeping inflationary pressure on the economy. Right now, I don't see how a rate cut can be justified, even though I have enormous sympathy for mortgage holders doing it tough. It's a sad system when they bear the brunt of the fight against inflation."

Sveta Angelopoulos, RMIT University (Hold): "It would be optimal to ensure that underlying inflation continues its trajectory, and that the RBA's target is stable before reducing interest rates. With uncertainty in the global environment given US policy and how it may impact Australia both directly and indirectly, it may be prudent to remain cautious and not move prematurely."

Tim Reardon, HIA (Hold): "The causes of inflation were not due to interest rate settings and have mitigated as supply chains improved."

Richard Holden, UNSW (Hold): "Core inflation is still 3.3 pc adjusting for subsidies."

Jakob Madsen, University of Western Australia (Hold): "CPI has just stabilized and the cash rate is, in my view still too low and out of tune with the long run equilibrium."

Matthew Greenwood-Nimmo, University of Melbourne (Hold): "I think the RBA will hold the cash rate constant until core inflation is expected to be sustainably in the target band given the ongoing strength of the labour market."

Evgenia Dechter, University of New South Wales (Hold): "Core inflation remains elevated. With the RBA's focus on price stability and its credibility at stake, they are likely to hold the cash rate until the next board meeting."

Nalini Prasad, UNSW Sydney (Decrease): "I think it will be a tight call for the RBA at its next meeting. Financial markets expect interest rates to be cut. But at the same time, I think the RBA will want to see more evidence of a sustained fall slowdown in inflation before it commits to a rate cut."

Tomasz Wozniak, University of Melbourne (Decrease): "Cherish the day! My forecasting system indicates that it's a decisive CUT. The predictive intervals from the pooled forecast, including from all bond yield curve models, for the first time in years, do not include the current value of the cash rate. This seems in line with what the newest data releases, including inflation readings, suggest. You can access these forecasts at https://forecasting-cash-rate.github.io/"

Dr Andrew Wilson, My Housing Market (Decrease): "Although the preferred measure of inflation is clearly moving towards the RBA target range risks remain. Services inflation remains too high, the labour market remains strong with upward pressure on wages due to worker shortages and the US has indicated a steady outlook for rates following recent falls as inflation rises again. The likely widespread imposition of tariffs by the US and retaliation by trading partners risks higher inflation. Surely given these circumstances it is prudent for the RBA to continue in pause mode at least over the shorter-term."

Leanne Pilkington, Laing+Simmons (Decrease): "The efforts to curb inflation appear to have worked and while the employment market remains strong, the cost of living – especially the cost of housing – means many Australians will welcome relief in the form of a rate cut."

Shane Oliver, AMP (Decrease): "Underlying inflation is falling faster than the RBA expected and has been running around target over the last six months, economic activity is a bit weaker than expected and Trump's trade war poses more risks to Australian growth than inflation."

Brodie Haupt, WLTH (Decrease): "Inflation is reportedly at its lowest level in three years and is on the cusp of the RBA's 2-3 per cent target zone. Many economists and experts earmark February as the potential start of a series of rate cuts."

Kyle Rodda, Capital.com (Decrease): "Although there's some ambiguity about the RBA's reaction function, there's an implicit bias to lower rates progressively as inflation trends towards the mid-point of the target band. Given the RBA hasn't come out to push back on this notion and market pricing since January's inflation figures, it says to me this is how the RBA is seeking to adjust policy going forward, beginning with a cut at this meeting."

Peter Munckton, Bank of Queensland (Decrease): "Inflation is now essentially back at target."

Garry Barrett, University of Sydney (Decrease): "core inflation now within target range and indications that will remain so."

Anthony Waldron, Mortgage Choice (Decrease): "The latest Monthly CPI Indicator from the Australian Bureau of Statistics revealed the lowest recorded rise in inflation since the June 2020 quarter, which I believe will give the RBA Board confidence to deliver the first cut to the cash rate since November 2020."

Mathew Tiller, LJ Hooker Group (Decrease): "Inflation has been within the RBA's 2-3% target band for two consecutive quarters, while economic growth remains low. The sustained period of high interest rates has heavily and disproportionately affected mortgage holders. A rate cut would provide much-needed relief to households and support broader economic stability."

Geoffrey Kingston, Macquarie University Business School (Decrease): "We are herd animals. The Bank board is no exception, as it demonstrated during Covid. Yet there is a respectable case for the Bank to resist the pervasive social pressure to cut. The latest data confirm that the labour market is strong, and trimmed-mean inflation is still outside the target range."

Jeffrey Sheen, Macquarie University (Decrease): "Inflation is sustainably anchored to the target band.. The labour market is steady. Output growth remains weak. Aggregate demand is propped up by public sector expenditure, mainly through energy subsidies. If and when these are removed, the CPI would mechanically rise but aggregate demand will likely fall well below potential output, risking a recession. The tariff wars have now begun, which should affect aggregate demand later in 2025.The RBA ought to have lowered earlier in anticipation of these dynamics, but now the case for starting the interest rate cutting towards the neutral rate is overwhelming.It seems that there is now almost a full consensus to cut amongst reputable economists and from market pricing."

Dale Gillham, Wealth Within (Decrease): "CPI has been falling for the past two years and now seems to be stabilising in the target range. The challenge is that prices for goods and services are not falling, they are just not rising as fast as they were. Also unemployment is still fairly low. That said, I think one or two rate cuts in 2025 is warranted in order ease the pain with regards to the cost of living."

Nicholas Gruen, Lateral Economics (Decrease): "We'll find out soon enough if the RBA wants to return to the regime it ran in the decade before COVID in which it targeted lower employment than we've subsequently discovered was almost certainly possible. The strange events at the beginning of this decade raised the prospect we might get back near full employment. But the RBA may decide that the 'natural rate' of unemployment is higher than the rate we can achieve and stick to that. It should definitely cut."

James Morley, University of Sydney (Decrease): "Headline inflation is back in (the middle of) the target range at 2.4% and the main underlying measure the RBA tracks (trimmed mean) is at 3.2% is just outside the 2-3% target range and a bit below the RBA forecast. Given a likely continued decline in underlying inflation back to the target range and the possibility the output gap and non-inflationary rate of unemployment are lower than the mid-points of RBA estimates suggest a slightly lower prescribed policy rate somewhere around 4.1%. There are risks to global inflation given the possibility of a trade war. But it makes sense to respond more now to current conditions and only adjust the policy rate to the domestic inflationary (and recessionary) impacts of such an event when they become clearer."

Adelaide Timbrell, ANZ (Decrease): "Trimmed mean inflation has annualised at 2.6% in the last six months and 4.35% is restrictive."

Craig Emerson, Emerson Economics Pty Ltd (Decrease): "The headline CPI is already in the RBA's 2-2% range and the trimmed mean rate is not far above it."

Associate Professor Mark Melatos, School of Economics (Decrease): "Monthly inflation readings have fallen precipitously and the Dec quarter CPI report showed headline inflation within the RBA's target range. While underlying inflation is still slightly above the target range, the trend since Dec quarter 2022 has been consistent decline. Any temptation to further reduce the cash rate will be tempered by any upward pressure on house prices, continued full employment and any geo-political inflation shocks. The RBA will likely only move to cut rates in a sustained fashion once convinced that underlying inflation has settled in the 2-3% range."

Stephen Koukoulas, Market Economics (Decrease): "Low inflation, weak growth - a long overdue rate cut."

Tim Nelson, Griffith University (Decrease): "Inflation appears to be back within the band. Global dynamics indicate the need for cut."

Michael Yardney, Metropole (Decrease): "Inflation is falling into the RBA's target range, and GDP remains weak. Being election year there is no doubt that there are other agendas and pressures at play, we hope the RBA does not succumb to them."

David Robertson, Bendigo Bank (Decrease): "The latest CPI data (especially core inflation) was more benign than expected, allowing the RBA to initiate the easing cycle in February. We expect at least three cuts to a more neutral cash rate of around 3 1/2 % by November."

Cameron Murray, Fresh Economic Thinking (Decrease): "It is tricky to not follow the world on lowering the cash rate."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Decrease): "Underlying inflation over the year to Q4 2024 was (in my view) close enough to the top end of the 2-3% target band to give the Board the confidence it's previously said it needs that inflation is 'sustainably' headed back to the target band (indeed according to the monthly CPI indicator it was back in the target band over the 12 months to December). And although the labour market is still tight by historical standards, the slowdown in wages growth over the first three quarters of 2024 suggests that the unemployment rate consistent with 'sustainable' full employment may be lower than the RBA's estimate of about 4.5%. Given that monetary policy works with a lag, if the RBA were to delay easing monetary policy much longer, given that the conditions it has previously stipulated for a first easing appear to have been satisfied, it would risk 'under-shooting' the inflation target (as it did between 2016 and 2020) and keeping unemployment higher than necessary (as it also did between 2016 and 2020)."

Stephen Miller, GSFM (Decrease): "The RBA is "over-achieving" on inflation to the extent it can confidently forecast it returning to target. With the private economy weak a cut would also buttress the labour market."

Matt Turner, GSC Finance Solutions (Decrease): "The sentiment has shifted to cut for Feb with investors and major banks all signalling that a cut is likely. Inflation is still falling however labour markets are strong and the government is overspending. I feel that they should hold, even though this isn't a popular opinion in the finance broking industry, as it would be disastrous for consumer sentiment if they need to increase in future. The threat of trade wars and tariffs and a AUD regressing against major currencies is a sign of more inflation to come, the RBA cannot afford to get this wrong and I don't see another quarter of stability as a bad thing in the scheme of the current environment."