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Households across Australia are anxiously waiting as the Reserve Bank of Australia (RBA) holds its first meeting of 2025. Many are hoping for an interest rate cut, which could provide much-needed financial relief.
The official cash rate has remained at a 13-year high of 4.35% since November 2023. This increase was part of the RBA’s efforts to control inflation. Now, with inflation slowing down, financial experts believe a rate cut is likely.
Homeowners Struggling with High Mortgage Rates
One of the biggest concerns for Australians is the high cost of home loans. Many first-time buyers, like Caitlin Wood and her husband, are feeling the pressure. Their home loan comes with a variable interest rate of 6.29%, making their monthly mortgage payments close to $4,000.
Caitlin hopes that even a small rate cut will help ease their financial burden. "A slight drop will mean whether we can go on holiday or think about starting a family. Right now, those just aren't possibilities for us," she said.
With mortgage payments and utility bills taking up over 50% of their income, they are among the millions of Australians struggling to make ends meet.
One-Third of Households Facing Financial Stress
According to research from Roy Morgan, about one-third of Australian households are under financial stress. Many are turning to credit cards and "buy now, pay later" services to cover expenses.
Michele Levine, CEO of Roy Morgan, explained how Australians are managing. "People are using credit cards as another form of loan, which is very expensive."
The Commonwealth Bank, Australia's largest lender, has already offered financial support to tens of thousands of struggling customers. Its CEO, Matt Comyn, warned that without an interest rate cut, more households would need assistance in 2025.
What Experts Say About Interest Rate Cuts
All four major banks predict a rate cut on February 18, with financial markets estimating a 90% chance of a 0.25% reduction.
David Bassanese, chief economist at Betashares, is confident that rates will come down. "The economy deserves a rate cut. Consumer spending is falling, and the country needs a boost."
He predicts three interest rate cuts in 2025, which will help lower mortgage rates but still keep them above restrictive levels.
How Rate Cuts Affect Different Households
A reduction in interest rates would bring relief to mortgage holders, but not everyone will benefit. Homeowners who have paid off their mortgages may see lower returns on their savings.
Banks usually reduce savings account interest rates when the RBA cuts the cash rate. This means people with money in the bank will earn less interest on their savings.
Final Decision: When Will the RBA Announce?
The Reserve Bank of Australia will publish its decision at 2:30 PM AEDT on Tuesday. Many Australians are hoping for a rate cut that will ease their financial stress and boost the economy in 2025.
