Warning Signs, The RBA Must Reduce Rate Cut to 50 Basis Points

The federal election is over, and the spotlight is now back on the economy. Interest rates, inflation, and unemployment are once again top of mind. 

Markets are already expecting the Reserve Bank of Australia (RBA) to act. But a small 25 basis point cut may fall short. Many now believe the RBA must go further and faster. Thus, the pressure is building for the RBA to deliver a 50 basis point cut urgently.

What’s The Problem?

Even with the cash rate sitting at 4.10%, we’re seeing clear signs of stress across the property market. And on top of that: 

• Economic growth is weak, at only 1.3%
• Inflation is steady, sitting at 2.4%
• Unemployment is rising 

So, these are the strong warning signs for RBA to act promptly. 

At the same time, the official cash rate is 4.10%, well above what we call the neutral rate, which is around 3 to 3.25%. This means the RBA’s settings are still too tight for where the economy is today.

But does it mean small steps won’t work now? 

Well, a 25-point cut will take time, and the worst thing is, the pace may be too slow to make a real difference. Also, with more small cuts after May, we won’t hit the neutral range until late September. 

And that’s over four months of:

• Strain on mortgage holders
• Delayed business investment
• Rising job losses
• Risk of pushing inflation too low

How This Impacts the Property Market

High interest rates are already hitting the property market hard. 

Here’s what’s happening:

• Borrowing power is down: Buyers now qualify for smaller loan amounts than a year ago.
• Buyer activity is slowing: High repayments are keeping first-home buyers and investors out.
• Listings are rising: More homeowners are selling due to Mortgage Pressure, which is putting downward pressure on prices in some areas.
• Confidence is low: With uncertainty around rate cuts, many are holding off on making property decisions. 

However, if the RBA brings rates closer to neutral, it could:

• Make home loans more affordable
• Improve buyer confidence
• Support price stability in key markets
• Help investors return to the market with better cash flow

That means the longer the RBA waits, the harder it becomes for households and property markets to recover. A 50 basis point cut won’t fix everything overnight, but it can bring much-needed relief. 

Our Advice For Everyone Today

With the RBA rate cut decision just around the corner, it’s important to stay ahead. So, in our opinion

First-home buyers should

• Get their pre-approval sorted for more chances of loan approvals.
• Use this time to research suburbs where prices are holding steady or dropping.
• Watch borrowing capacity because even a small cut could lift how much lenders may offer you.

Property investors should 

• Review their cash flow, since A lower interest rate could boost rental yield margins.
• Look at long-term value areas and don’t just chase price drops while focusing on growth potential. 
• Speak to your broker about refinancing or structuring your loans better ahead of expected changes.

Existing homeowners should 

• Consider refinancing, because if you’re on a higher fixed or variable rate, this might be your chance to cut repayments.
• Check your loan health to determine if you can switch products or lenders and save money. 
• The market may soften in the short term, but lower rates tend to support prices in the long run. Thus, avoid panic selling. 

The Bonus Tip

This is a critical time. Each decision is crucial, and making it alone could result in higher costs than you anticipate. However, a trusted buyer’s agent can help you navigate these changes with less stress and better results. 

Want help making the right move? Let our experienced buyer agents guide your next step in your investment journey. Book a free discovery call today.