May 2025 Interest Rate Drop

In May 2025, the Reserve Bank of Australia (RBA) lowered the official cash rate by 25 basis points to 3.85%, marking the second rate cut of the year and the lowest level in two years. This move was made in response to easing inflation, which has returned to the target range of 2 to 3 percent. The RBA signaled that economic conditions had improved enough to justify easing monetary policy, offering some relief to households and mortgage holders amid ongoing global economic uncertainty.

The rate cut has had a varied impact across the economy. While it has benefited borrowers by reducing loan repayments, it has also affected savers by lowering interest income from deposits. Financial institutions have already begun to reduce term deposit rates, and further cuts are expected. In the property sector, the lower interest rate has increased borrowing capacity, making it easier for buyers to enter the market—but it may also lead to rising property prices, posing challenges for first-home buyers trying to save for a deposit.

The RBA has suggested that additional rate cuts may be considered if economic conditions warrant further support. At the same time, there is a growing call for increased housing supply to address demand pressures. The central bank’s decision to opt for a modest reduction, rather than a larger cut, reflects a cautious but optimistic outlook—seeking to encourage economic activity without creating new financial imbalances.