The Reserve Bank of Australia has delivered its second rate cut of 2025, reducing the official cash rate by a further 25 basis points at the May board meeting. The cash rate now sits at 3.85%, down 50 basis points from the peak of 4.35% reached in November 2023. After an April pause to assess the impact of February's initial cut, the board clearly concluded that the easing cycle should continue. For Australian mortgage holders, this is further meaningful relief - and the cumulative savings are starting to add up. (Source: RBA Media Release)

The Decision

The RBA board met on 20 May 2025 and voted to cut the cash rate from 4.10% to 3.85%. The decision was widely anticipated, with financial markets pricing in a high probability of a cut heading into the meeting. The continuing moderation of inflation, combined with subdued household spending and slightly softer employment growth, gave the board the confidence to move again. Governor Michele Bullock acknowledged that the easing cycle was progressing as intended, though she maintained the board's usual caution about providing forward guidance on the pace of future cuts.

Why the RBA Cut Again

The May cut reflects a combination of factors that gave the board confidence to continue easing:

  • Inflation continuing to moderate: Headline and underlying inflation both trended lower into the May meeting, with trimmed mean inflation firmly within the 2–3% target band. The board assessed the risk of inflation re-accelerating as low.
  • Household spending still subdued: Despite February's cut providing some relief, consumer spending remained below pre-tightening levels in many discretionary categories. The board viewed this as evidence that monetary policy was still doing work, and that further easing was appropriate.
  • Labour market softening at the margins: Job creation had slowed slightly from its earlier pace, with the unemployment rate nudging up marginally. This gave the board additional room to ease without risking overheating the labour market.
  • Global context supportive: Major central banks continued their easing cycles, reinforcing the global picture of receding inflation and the case for lower rates domestically.

What This Means for Borrowers

With two cuts now delivered in 2025, the cumulative impact on repayments is becoming material. Variable rate mortgage holders who have received both the February and May cuts in full will be paying noticeably less than they were at the start of the year.

For a borrower with a $600,000 variable rate mortgage with 25 years remaining, the two 25 basis point cuts together save approximately $156 per month compared to January 2025. That is the equivalent of nearly $1,900 per year back in your pocket - money that can go toward offset contributions, additional repayments, or simply easing the household budget.

  • Variable rate borrowers will see their repayments fall further once their lender passes on today's cut. Check your lender's announcement for confirmation of the new rate and when it takes effect.
  • Offset account holders benefit in two ways - their minimum repayment falls, and every dollar in offset is reducing a slightly lower outstanding balance, improving the efficiency of the strategy.
  • Prospective buyers will find that their borrowing capacity has improved meaningfully since the start of the year, as lenders recalculate serviceability at lower assessment rates.

What You Should Do Now

Two cuts in, many borrowers are still not on the best available rate. The lenders offering the sharpest pricing are competing hard for refinancers, and the savings available through a well-timed switch can dwarf the benefit of the RBA cuts alone.

  • Check both cuts have been passed on: Confirm with your lender that you have received both the February and May reductions in full. Your current rate should reflect a 50 basis point improvement from your January 2025 level.
  • Consider maintaining your existing repayment amount: With rates falling, your minimum repayment decreases - but keeping repayments at their previous level means you're aggressively paying down principal and saving substantially on long-term interest costs.
  • Explore refinancing: If you haven't reviewed your loan in the past year or more, there is a strong chance a better deal is available. A broker comparison could reveal savings beyond what the RBA cuts have already delivered.
  • Plan for further cuts: Most economists were forecasting additional reductions before the end of 2025. Understanding how you'd deploy those savings strategically - whether into offset, additional repayments, or investment - is worth planning ahead.

At Loan Hive, we're tracking every lender movement to ensure our clients are getting the best possible outcome from this easing cycle. If you'd like to see how today's cut affects your specific loan, or explore whether refinancing makes sense for your situation, contact us today for a no-obligation chat.