The Reserve Bank of Australia wrapped up 2024 by keeping the official cash rate on hold at 4.35% at its final board meeting of the year. It was a widely anticipated decision, and for most borrowers it means no immediate change to repayments heading into the Christmas break. But with inflation still sitting above the RBA's target band and the economic outlook shifting, the bigger question is what 2025 holds. Here's what you need to know. (Source: RBA Media Release)

The Decision

At its meeting on 10 December 2024, the RBA board voted to maintain the cash rate target at 4.35%. The rate has been at this level since November 2023, meaning it has now been on hold for thirteen consecutive months. While the decision itself was no surprise, the tone of the accompanying statement was closely watched by economists and mortgage holders alike. The board acknowledged that inflation had continued to ease over the second half of 2024, but noted it remains above the 2–3% target band and stressed that any premature easing of policy could allow inflation to re-establish itself.

The State of Play Heading into 2025

This final decision of the year came against a backdrop of gradually improving economic conditions, though the picture remains mixed:

  • Inflation trending down: Trimmed mean inflation, the RBA's preferred measure, had fallen from its 2022 peak but remained above 3% for most of 2024. The direction of travel was encouraging, but the board wanted more evidence before moving.
  • Labour market resilient: Australia's unemployment rate held below 4.5% throughout 2024, which the RBA viewed as a sign that the economy remained fundamentally sound despite the pressure of higher rates.
  • Consumer spending subdued: Retail spending data pointed to households doing it tough, with discretionary spending pulling back noticeably - a signal that the rate hikes had done some of their intended work.
  • Market expectations shifting: By December 2024, financial markets had priced in a high probability of a rate cut early in 2025, with most economists pointing to the February board meeting as the most likely starting point for an easing cycle.

What This Means for Borrowers

For variable rate mortgage holders, the hold means no change to repayments for now. After thirteen months at 4.35%, most borrowers have already adjusted their budgets to the current rate environment. The more significant shift in this decision is the growing expectation that relief is on its way.

To put the current environment in context, consider a $600,000 variable rate mortgage with 25 years remaining. At today's rates, the monthly repayment is substantially higher than it was before the hiking cycle began in May 2022. Every 25 basis point cut from here would save that borrower approximately $78 per month. If 2025 delivers two or three cuts as many economists are forecasting, the cumulative savings are meaningful.

  • Variable rate borrowers should hold on - relief may be closer than it has felt in over a year.
  • Fixed rate borrowers rolling off their fixed term in early 2025 may want to explore whether short-term fixed options make sense, or whether moving to variable ahead of anticipated cuts is the better strategy.
  • First home buyers watching the market should factor in the improving rate outlook when planning their timeline.

What You Should Do Now

The end of year is actually an ideal time to take stock of your home loan position. Lenders often push competitive offers in December and January, and many borrowers are surprised to find they could be getting a significantly better rate with minimal effort.

  • Check your current rate: If you haven't reviewed your home loan in the past twelve months, there's a good chance better options are available. A quick comparison could reveal you're paying more than necessary.
  • Prepare for the new year: If a cut does arrive in February, lenders won't automatically pass it on in full. Having a broker in your corner means someone is watching for you and can act quickly when the market moves.
  • Avoid locking in long-term fixed rates right now: With cuts on the horizon, locking in for three to five years at current rates would likely mean missing out on the benefits of an easing cycle.
  • Get a broker review: A mortgage broker can assess your current loan against the full market and give you a clear read on whether now is the right time to refinance or whether waiting for the first cut makes more sense for your situation.

The team at Loan Hive is across all the major lender movements and is ready to help you head into 2025 in the strongest possible position. Whether you're looking to refinance, buy your first home, or simply understand what the rate outlook means for you, reach out to us today for an obligation-free conversation.