The Reserve Bank of Australia’s Board held the cash rate at its current level at the May 2025 meeting. The decision was widely anticipated, with the Board continuing to balance persistent services inflation against signs of softening in the broader economy.
What the RBA said
The Board’s statement noted that while headline inflation has returned to the target band, underlying inflation — which strips out volatile items — remains above target. The labour market remains resilient, which limits the urgency for rate relief. The RBA signalled it needs sustained confidence that inflation is returning to target before cutting rates.
What this means for variable rate borrowers
If you have a variable rate mortgage, your repayments won’t change as a result of this decision. However, the hold does reinforce the message that rates will stay higher for longer than many borrowers had hoped when the tightening cycle began.
For a borrower with a $750,000 variable rate mortgage, the difference between the standard variable rate two years ago and today’s rate represents approximately $2,200 extra per month in repayments. That pressure isn’t going away quickly.
Fixed vs variable: is it time to lock in?
Expectations for rate cuts have been pushed out. Some economists are now forecasting only one or two cuts in the calendar year. If you’re on a variable rate and concerned about cashflow, fixing part of your loan may provide certainty — but it comes at a cost if rates fall more than expected.
The decision between fixed and variable is highly individual. It depends on your loan size, buffer capacity, income stability, and plans for the property. A split loan (part fixed, part variable) can offer a compromise — some certainty on a portion while retaining flexibility on the rest.
The refinancing opportunity remains open
Many Australians are still on their original lender’s standard variable rate rather than the best available rate in the market. The gap between a competitive loan and a loyalty rate can be 0.5% to 1.0% — on a $750,000 mortgage, that’s $3,750 to $7,500 in unnecessary interest each year.
With rates expected to stay elevated for at least a few more months, there is still time to refinance at favourable rates before cuts make lenders less competitive on their offers. It’s worth understanding what rate you’re on and what the current market looks like.
Offset accounts and redraw facilities
If you have savings sitting in an everyday account earning minimal interest, moving those funds into an offset account linked to your mortgage is often the most tax-effective option available. Every dollar in offset reduces the balance on which interest is charged, and unlike investment returns, the saving is not taxable income.
AGS mortgage brokers can help you review your current loan, compare the market, and model whether refinancing makes financial sense for your situation — including factoring in break costs if you’re on a fixed rate.