The Reserve Bank of Australia (RBA) board surprised no one when it emerged from its two-day meeting to declare the cash rate will remain at its 12-year high on Tuesday.

Australia continues to await its first cash rate cut, with hopes fanned by the US Federal Reserve's recent 50 basis point reduction.

However, RBA governor Michele Bullock signalled last month that the Australian central bank is in no rush to cut, saying a 2024 reduction "doesn't align with the board's current thinking."

"Inflation is still some way above the midpoint of the 2%–3% target range," Tuesday's statement from the RBA board reads. 

It noted that inflation dropped in July and is being weighed down by federal and state government cost-of-living relief, but the RBA board doesn't expect it to "sustainably" return to target until 2026.

"Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range," it said. 

While many households are desperate for rate relief, the RBA board continues to wait for the economy to soften further before lowering the cash rate.

Despite sluggish GDP growth, unemployment remains low and inflation has yet to ease significantly.

However, new monthly inflation figures for August, set to be released on Wednesday, have the potential to shift the narrative.

Today's decision comes amid findings nearly one in three home loan borrowers were at risk of mortgage stress in the three months to August, according to Roy Morgan polling.

While down from levels seen before the stage three tax cuts took effect, 850,000 more homeowners remain at risk of financial strain compared to before the RBA's latest hiking spree.

Currently, the typical interest rate on a new variable rate home loan is around 6.30% p.a., according to RBA figures.

This brings monthly repayments on a $500,000, 30-year mortgage to nearly $3,100.

By comparison, the same mortgage would have cost less than $2,000 per month in April 2022, when the typical new variable rate was approximately 2.40% p.a. and the cash rate sat at a record low of 0.1%.

When will the RBA cut the cash rate?

Expert predictions for the first cash rate cut shifted when the most optimistic of the big four banks, CommBank, pushed back its forecast last week.

"Not all the ducks have lined up for a November cut," CommBank head of Australian economics Gareth Aird said.

CommBank now expects a rate cut in December, while Westpac and ANZ are forecasting a February 2025 cut.

NAB, meanwhile, anticipates a downward move in May 2025.

Interestingly, despite their differing timelines, the two banks on opposing ends of the spectrum agree we'll see five cash rate cuts by the end of 2025, leaving the cash rate at 3.10% by next year's close.

Westpac projects the cash rate will end 2025 at 3.35%, while ANZ forecasts 3.60%.

Assuming we do see five 25 basis point cuts in the coming year or so, and assuming home loan lenders pass all onto borrowers, the typical new variable interest rate could fall to 5.05% by late 2025.

At such a rate, the monthly repayments on a $500,000, 30 year mortgage would be around $2,700 - around $400 a month less than they are today.

To learn how a rate cut could impact your home loan repayments, check out Your Mortgage's home loan repayment calculator

Home loan lenders cutting interest rates despite no RBA move 

The cash rate is now set to remain at its peak for a full 12-month period, having been lifted to its current level in November 2023 and given the RBA board won't be meeting next month.

That appears to have left lenders to make the first move.

Many home loan providers have slashed rates in recent months, including three of the big four banks.

NAB was first, cutting the top of much of its fixed rate line up, followed by Westpac. 

CommBank went even further, slicing some of its variable rate offerings too. 

More recently, a new leading rate emerged in the market when South West Slopes Credit Union unveiled a special three year fixed rate of 4.99% p.a. for eligible borrowers (6.15% p.a. comparison rate*). 

Check out Your Mortgage's weekly home loan rate wrap to keep up with the latest interest rate moves

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