- 19 Mar 2025
- By API Magazine
The market is tipping another rate cut soon but the RBA is less convinced in a world of chaotic Trump-led tariffs, although that hasn’t stopped some banks aggressively courting borrowers through lower interest offerings.
Smaller banks offering lowest interest rates
While the RBA is talking down market expectations, some banks are going on the offensive.
The big four banks are trailing well behind the low cost lenders but even a couple of those are trying to be competitive.
Australia’s second biggest home loan lender, Westpac, threw down the gauntlet this week to its big bank competitors with a new lowest variable rate of 5.84 per cent. This is 0.35 percentage points lower than its previous lowest variable rate of 6.19 per cent.
Westpac now holds the equal lowest advertised variable home loan rate of the big four banks, alongside ANZ.
While the lowest big four bank variable rate is currently 5.84 per cent, Canstar shows there are over 35 lenders offering at least one variable rate under 5.75 per cent.
This includes subsidiaries of larger banks including Unloan (CBA) and Timely Home Loans (Bendigo Bank).
The lowest advertised rate available to refinancers is currently 5.64 per cent, available from five different lenders.
Canstar estimates that a complacent owner-occupier is on a variable rate of 6.86 per cent following the RBA’s February cash rate cut and the average owner-occupier is on a rate of 6.06 per cent.
If the complacent borrower refinances to a competitive rate under 5.75 per cent they could potentially save over $12,000 in interest charges over the next two years. This includes $1,000 of switch costs.
The RBA’s juggling act
The RBA’s delicate balancing act in setting rates is based on forecasts that are volatile and offer long lag times.
Ms Hunter told the banking summit that any impact from the February rate cut would take about nine months to fully flow through to GDP, pushing any boost to growth and spending well into late 2025 or beyond. Inflation was even less responsive.
“While it takes about nine months for the cash rate to have its biggest impact on GDP, the peak effect on inflation is estimated to take nearly twice as long.
“This could be because it takes time for an increase in demand to affect the hiring decisions of firms and the job search decisions of households, which then ultimately feed into price setting – or it may simply reflect some ‘stickiness’ in prices.”
Ms Hunter acknowledged that the RBA’s policy decisions are made in the context of various risks and uncertainties.
Chief among those concerns at the moment is the Trump administration’s aggressive US trade policy, which is seemingly impacting consumer sentiment already.
An ANZ Roy Morgan survey released Tuesday (18 March) showed consumer confidence had dropped to its lowest level since October 2024. Less than one in ten Australians expect “good times” for the economy in the next 12 months.
But she stressed that last month’s rate cut was vindicated by signs of a recovery in household spending, particularly in the December quarter. Signs of more discretionary spending, such as dining out, hinted at improving consumer sentiment.
Property prices could reignite
The property market, which has ended a shallow three-month downturn, could also rebound further on the back of any further interest rate cuts.
Faris Dedic, Managing Director, DIG Capital Advisory and COI Capital Management, said the latest interest rate cut marks a turning point, restoring confidence and encouraging buyers to act before prices rise.
“We anticipate demand will outstrip supply across all property asset classes due to minimal new stock coming to market over the past four years.
“While the impact won’t be immediate, property values should see a steady increase, which could accelerate if further cuts follow.
“Rate cuts signal inflation control and economic stimulus, leading to renewed investor confidence.”
The flipside of the rate cuts, of course, is that savings rates are diminished, potentially prompting more investors to look for alternative revenue streams.
“Many investors had been sitting on cash, earning 4 to 5 per cent in deposits but with rates declining, they will now seek higher-yielding assets, particularly in property and private credit.
“For borrowers, access to capital will improve as lending conditions ease, boosting serviceability and creating a more dynamic lending environment.
“The RBA’s shift in stance signals the start of a new cycle and now is the time to act,” Mr Dedic said.
The RBA’s next interest rate announcements are on 1 April and 20 May 2025.
Article Q&A
How long does it take interest rate movements to impact the economy?
The RBA’s Assistant Governor Sarah Hunter said any impact from the February rate cut would take about nine months to fully flow through to GDP, pushing any boost to growth and spending well into late 2025 or beyond. Inflation was even less responsive, taking up to twice as long.
When will the RBA next cut interest rates?
Market positioning currently implies a 65 per cent probability the bank will cut again at its 20 May policy meeting after sitting tight at its 1 April board meeting. But Assistant Governor Sarah Hunter in March 2025 went some way to hosing down assertions that a May cut to the current 4.10 per cent was a given.
What are the lowest loan interest rates?
While the lowest big four bank variable rate is currently 5.84 per cent, Canstar shows there are over 35 lenders offering at least one variable rate under 5.75 per cent. The lowest advertised rate available to refinancers is currently 5.64 per cent, available from five different lenders.
When are the next RBA interest rate announcements?
The RBA’s next interest rate announcements are on 1 April and 20 May 2025.
