What this month’s RBA rate cut means for us investors

For the first time in over four years, the Reserve Bank of Australia has today cut the cash rate.

Following a 25 basis point reduction, the official cash rate now sits at 4.1 per cent. The somewhat anticipated decision shows the RBA is agreeing with the sentiment of most economic commentators that inflationary pressures are easing, evidenced in core inflation declining to 3.2 per cent in the December quarter.

The Big Four have already announced they’ll be moving to cut rates by the end of the month (Westpac bucking the trend with an early-March cut of their consumer interest rates). So, it’s naturally good news for those with a mortgage.

There’s plenty to talk about with this month’s RBA decision, so we thought we’d outline a few key items as a sort of ode to the first interest rate drop since November 2020.

What was the reason behind the rate cut decision?

The RBA’s decision to lower the cash rate was persuaded by several key factors.

To start, core inflation has decreased to 3.2 per cent, meaning the RBA’s target range of 2-3 per cent is in sight. Whether the RBA and their tightening measures is to thank for this result is up for debate.

That’s because we’ve also seen wage growth pressures eased. This most certainly has contributed to the overall reduction in inflationary pressures.

But despite these positive indicators, the RBA remains cautious due to potential upside risks, like an unexpectedly strong labor market, which suggests a tighter labor market than previously thought. No doubt they’ll be watching this metric before making any further rate cuts. That said, no major bank is expecting another reduction for a few months.

What the February rate cut means for property investors

The RBA’s rate cut has significant implications for both residential and commercial property investors:

Increased borrowing capacity

The rate cut lowers monthly mortgage repayments, increasing borrowing capacity potential for investors. A 25 basis point reduction could save approximately $77 per month on a $500,000 mortgage, meaning banks will factor in lower repayments for both existing and prospective debt when assessing a new borrower.

Potential for capital growth

Lower interest rates can stimulate demand in the housing market, potentially leading to capital appreciation of high-demand assets. But of course the impact might be neutralised by higher property listings and affordability concerns across the country.

For commercial property investors, the impacts of this reduction are significant.

Improved investment viability

Reduced interest rates will lower financing costs for commercial property investments, potentially making projects more financially viable. Remember, while only being a quarter-percent of a reduction, that cut goes a long way for a multi-million dollar loan facility.

Market stability

The rate cut might also contribute to overall economic stability, positively influencing the commercial property market. It’s not just investors looking at a greater number of opportunities, but those, for example, in the mining and resources sector. Potential for project expansions and the like will obviously have a great impact on the economy (particularly in mining states).

The RBA’s February decision is a strategic move to support economic stability and growth. For property investors, it brings an opportunity to reassess investment strategies, realise the potential for increased borrowing capacity and witness a surge in market activity in both residential and commercial sectors.

Will it be the last rate cut of 2025? Unlikely. That’s at least the sentiment of most economic commentators out there. And even if they’re wrong, it’s the confidence and certainty this forecast provides to borrowers that will help support demand in the Aussie property market. We’re expecting 2025 to be another year of growth, and today’s RBA decision has just supported our expectations.

---

Properties & Pathways is a leading commercial and residential property syndicator in Australia. Our priority is our investors, ensuring the highest quality investments and the most transparent communication. 

Subscribe to our Investment Updates for exclusive alerts about our next property investment opportunities.