Good news for millions of Aussies with a mortgage as Reserve Bank makes huge announcement on inflation

Aussie borrowers can expect a rate cut next month with inflation falling to a new three-year low.

Underlying inflation in the June quarter fell to 2.7 per cent, putting it closer to the mid-point of the Reserve Bank’s two to three per cent target and increasing the chance of an August 12 rate cut.

The trimmed mean, the RBA’s preferred measure of underlying inflation, was at the lowest level since December 2021, following lockdowns in Sydney and Melbourne. 

Headline or consumer price index inflation fell again to just 2.1 per cent, the lowest since March 2021.

Westpac chief economist Luci Ellis, a former RBA assistant governor, said the latest inflation data pointed to a rate cut next month.

‘RBA likely to continue reducing monetary restrictiveness, including by cutting the cash rate at its August meeting,’ she said.

‘The RBA Monetary Policy Board in July opted to wait for more confirmation that inflation is on track to return to the mid-point of the two to three per cent target range and stay there. That confirmation has now come with the full June quarter CPI data.’

A rate cut next month would take the RBA cash rate back to 3.6 per cent for the first time since May 2023, add to the relief delivered in February and May. 

Aussie borrowers can expect a rate cut next month with inflation continuing to fall

Reserve Bank of Australia Governor Michele Bullock earlier this month said underlying inflation in the June quarter would have to fall closer to the 2.5 per cent to warrant a rate cut next month.

That was after the RBA cash rate was left on hold at 3.85 per cent, surprising economists and financial markets.

‘We’re waiting to confirm whether inflation is still on track to sustainably reach 2.5 per cent,’ Ms Bullock said on July 8.

‘I do understand that and I do understand that households with mortgages are very keen to see interest rates decline because it helps them with their cash flow. 

‘I’m very conscious of that. I’m also very conscious we don’t want to end up having to fight inflation again.’

Ms Bullock had regarded the March quarter’s trimmed mean inflation level of 2.9 per cent as being too high, despite it being within the two to three per cent target. 

‘We’ve only had one quarter of underlying inflation just back in 2.9 per cent,’ she said.

‘Underlying inflation at the moment gives us the best idea of the underlying inflation pulse, if you like, because the headline numbers are mixed up a bit by particularly energy rebates. So the underlying is the best read.’

Reserve Bank of Australia Governor Michele Bullock earlier this month said underlying inflation in the June quarter would have to fall and stay closer to the 2.5 per cent to warrant a rate cut

Westpac chief economist Luci Ellis, a former RBA assistant governor, said the latest inflation data pointed to a rate cut next month (she is pictured left with former RBA chief Philip Lowe)

In a sign falling immigration is helping to ease the rental crisis, housing costs rose by just two per cent in the year to June. 

But services inflation is still an issue with education costs rising by 5.5 per cent as insurance and financial services costs went up by 3.1 per cent. 

The more volatile monthly inflation series from the Australian Bureau of Statistics showed headline inflation falling to just 1.9 per cent as underlying, trimmed mean inflation eased to just 2.1 per cent. 

The Reserve Bank, however, pays more attention to the comprehensive quarterly inflation data than the more volatile monthly indicator.

This data also showed a 6.3 per cent annual decline in electricity bills with the federal government’s $75 quarterly rebates continuing until the end of 2025.

While the RBA left rates on hold in July, the futures market regards an August rate cut as a 95 per cent chance, followed by two more cuts in late 2025 that would take the cash rate down to 3.1 per cent for the first time since February 2023.

Several non-bank lenders have now dropped their variable mortgage rates, with Police Credit Union offering a market leading 4.99 per cent. 

When it came to fixed rates, Pacific Mortgage Group offered a 4.99 per cent rate for one year while Greater Bank and The Mutual Bank offered 4.94 per cent rates for two and three-year terms. 

Canstar data insights director Sally Tindall said fixing too soon was a big gamble considering more rate cuts were now likely. 

‘Fixed rates continue to tumble as banks jostle for pole position, but that doesn’t mean everyone should rush to lock in,’ she said.

‘Banks are dangling sharp fixed rates in front of borrowers chasing short‑term certainty, but with RBA cash rate cuts still on the table, potentially as early as 12 August, fixing could be a gamble.

‘If you’re thinking about fixing, make sure you understand the trade‑offs — you might be buying peace of mind, but it could come at a cost if rates fall faster than expected.’