Interest Rate Cut Follows July Hold

The Reserve Bank of Australia has reduced the cash rate by 25 basis points to 3.6 per cent.

This marks the third cut this year, offering relief to millions of mortgage holders after July’s unexpected pause.

The decision was unanimous, supported by easing inflation data.

June headline inflation fell to 2.1 per cent from 2.4 per cent, while trimmed mean inflation fell to 2.7 per cent.

RBA Governor Michele Bullock said underlying inflation was returning towards the 2 to 3 per cent target band.  

RBA Signals Data-Dependent Approach

Bullock stated that the board may not need to cut rates as much as other central banks.

She emphasised that decisions would continue to be made on a “meeting by meeting” basis.

The governor noted that the neutral rate could be between one and four per cent.

She confirmed that no large rate cut was discussed, with all members supporting the 25 basis point reduction.

Market Expectations for Further Cuts

Financial markets are now pricing in an 80 per cent chance of another cut in November.

AMP chief economist Shane Elliott expects reductions in November, February, and May, taking the rate to 2.9 per cent in 2026.

Commonwealth Bank and ANZ forecast a November cut, while Westpac projects three cuts and NAB predicts two.

The next RBA meeting is scheduled for September 29 and 30.

Savings for Mortgage Holders

For owner-occupiers with a $600,000 loan, the latest cut could save $89 a month.

Across three cuts this year, savings could total $272 monthly if banks pass on reductions in full.

Commonwealth Bank, Westpac, ANZ, and NAB confirmed they will pass on the latest cut.

CBA and ANZ will reduce rates from August 22, NAB from August 25, and Westpac from August 26.

Expert Views on Lending Trends

Canstar’s Sally Tindall expects most lenders to pass on the full cut to borrowers.

She warned that future generosity might decline if more cuts follow in quick succession.

Finder’s Graham Cooke noted that lenders may begin to offer smaller reductions, as seen during previous cutting cycles.

Both experts advised borrowers with rates above 5.5 per cent to consider switching for better deals.

ASX 200 Closes at Record Level

The ASX 200 rose 0.4 per cent to close at 8,880.8 points after the RBA decision.

The broader All Ordinaries gained 0.36 per cent to finish at 9,150.3 points.

                                                Source: Marketindex

Eight of eleven market sectors ended higher, with discretionary, financial and utilities stocks leading gains.

All major banks posted rises, with ANZ up 2.2 per cent to $31.93 per share.

Company Performances and Currency Movements

The Star Entertainment Group surged 23.6 per cent after agreeing to sell its Queen’s Wharf casino stake.

JB Hi-Fi gained 5.6 per cent, while BHP, Rio Tinto and Fortescue all recorded increases of around one per cent.

The Australian dollar dipped to 65.00 US cents after the RBA announcement before partially recovering.

It traded at 96.43 Japanese yen, 55.96 euro cents, 48.36 British pence and 109.58 New Zealand cents.

Market Outlook

The cash rate can now be considered the lowest it has been in over two years, and this currently shifts the sentiment in the market which expects monetary easing to be sustained.

This insistence on data results in the RBA seeking to make future changes based on the inflation, employment and growth rates in the months ahead.

Stock markets are pricing in as little as one additional cut this year, likely November, and further cuts next year might be probable.

This kind of expectation is aiding robust demand in the equity market since lower rates usually stimulate shares more attractive than fixed income investments.

Even though the probability of a recession is low as the analysts report, world uncertainties such as trade tensions and overseas monetary policy changes, might affect the actions of the RBA.

The willingness of the central bank to reevaluate every meeting on its own provides an opportunity to make changes by adjusting in case any change in economic conditions occurs that was not expected.