The Reserve Bank of Australia (RBA) interest rate cuts of 25 points made headlines across the Australian media landscape on 20 May, but what does it mean for you?
Well, first of all, the new RBA rates provide some breathing space for Australia, especially for mortgage holders and small businesses.
Let’s dive in and see how the changes could impact you.
What is happening with the RBA rate cuts in May 2025?
The RBA cut the official interest rate to 3.85 per cent on May 20, 2025, marking its lowest level in two years.
This 25 basis point reduction follows a previous cut in February and a rate hold in April, which signals a shift to supporting economic stability amid easing inflation and global uncertainties (aka Trump Tariffs and disruption to global economies due to the conflicts in Gaza and Ukraine).
The cut, just the second this year, comes as inflation continues to ease and global economic uncertainty grows. With inflation now sitting comfortably within the RBA’s 2–3% target range, this rate drop is designed to gently support the economy without sparking another cost-of-living blowout.
Think of this rate cut like the RBA gently taking its foot off the economic brake. It’s hoping to make life a little easier after two years of financial pressure, but not so easy that inflation comes roaring back.
Why were the rates cut?
There are multiple reasons. First and foremost, inflation is under control. It’s dropped to 2.4 per cent, down from the frightening 7.8 per cent peak in late 2022.
However, the global outlook is shaky. As aforementioned, tensions overseas and new U.S. tariffs have made central banks cautious.
Finally, our economy needs support: While employment remains solid, the RBA is giving things a nudge in the right direction.
However, some in the finance industry believe the decision doesn’t go far enough.
“Today’s decision will be met with a sigh of relief from households and businesses who have been counting on another rate cut to boost their cashflow,” said the accounting body CPA Australia’s Business Investment Lead, Gavan Ord.
“After multiple rate rises, persistent inflation and cost-of-living pressures, consumer and business confidence remain subdued. This cut should lift sentiment slightly and put a bit more money back into people’s pockets.
“But rate cuts will not get Australia out of its productivity straitjacket. Significant reforms are needed to move the needle on economic growth.”
But what does the RBA rate cut mean for everyday Australians?
If you’ve got a mortgage:
“While one cut is unlikely to be a silver bullet for many households, it’s a small weight off the shoulders of millions of borrowers across the country,” says Canstar data insights director, Sally Tindall.
Canstar outlined that the average home buyer with 25 years remaining on their loan could receive a $76 drop in repayment for a $500,000 loan, $91 for a $6000,000 mortgage, $114 for a mortgage of $750,000, and $152 for a $1m loan. You can read their number crunching here.
All four big banks (NAB, ANZ, Commonwealth Bank, Westpac) say they’ll pass on the full cut by early June.
If you’re renting:
Not much immediate change, unfortunately. Rent relief won’t be felt unless landlords pass on their savings, which is rare.
But rate cuts can take pressure off the market over time, which may slow down rent hikes.
If you’re a saver or retiree:
Lower interest rates on savings accounts and term deposits mean less income from bank interest, which isn’t great if you’re living off it.
Many older Australians could see their hard-earned savings earning even less. This might impact those living on retirement savings.
If you’re shopping or borrowing:
Credit card and personal loan rates might go down slightly, which can help ease household spending stress.
It could also encourage people to spend more, which is what the RBA wants to boost the economy.
What’s next?
More cuts may come if inflation stays low and the global economy softens further. Bottom line? If you’ve got a mortgage, you might breathe a little easier. But if you’re saving for the future or renting, the benefits won’t be felt just yet.
For now, this cut is a signal of confidence — that the worst of the inflation crisis might be behind us.
