RBA rate cut likely as inflation falls to 3.2%

Australia's underlying inflation rate has fallen to 3.2%, strengthening the case for a Reserve Bank of Australia (RBA) rate cut next month.

The latest figures from the Australian Bureau of Statistics (ABS) reveal the consumer price index (CPI) dropped to 2.4% in the December quarter, driven by lower electricity and fuel prices, as well as moderating costs for new dwellings.

The data could play a crucial role in the RBA's decision at its next meeting on 18 February, as mortgage holders across the country struggle under the weight of high interest rates.

Mortgage holders under pressure

New research from Finder's Consumer Sentiment Tracker (CST) highlights the severe impact of sustained high interest rates:

• 38% of Australian homeowners say they are struggling to pay their mortgage.
• One in ten (11%) mortgagors admit they would have to sell their home or apply for financial hardship if rates remain unchanged until May.
• A further 3%-equivalent to 99,000 borrowers-would be forced to sell if rates don't start dropping.
• 40%-or 1.3 million mortgage holders-would have to cut back on spending over the next four months to keep up with repayments.

Meanwhile, almost half (49%) of borrowers say they would be fine if interest rates stayed the same throughout 2025.

Women feeling the pinch more than men

The research found female borrowers are hardest hit - with 14% admitting they'd struggle to meet their loan repayments if interest rates stay high until May, compared to 8% of male borrowers.

RBA's next move - what to expect

With the trimmed mean inflation rate falling further within the RBA's target range, pressure is mounting for a rate cut.

"Thousands of mortgage holders are under immense financial strain and can't manage high repayment costs much longer," said Graham Cooke, Head of Consumer Research at Finder.

"For them, the trimmed mean is more relevant than the actual inflation rate - because it removes some of the most extreme price movements, which tend to fluctuate a lot."

"Mortgage stress is expected to remain an area of concern, highlighting the delicate balance the RBA must strike between taming inflation and supporting household financial stability," Graham said.

How much would a rate cut save borrowers?

If the RBA cuts the cash rate by 25 basis points (from 4.35% to 4.10%), homeowners with the average mortgage size of $641,416 would save approximately $103 per month on repayments.

Calls for refinancing as fixed rates drop

With mortgage holders feeling the pressure, Cooke urged Australians to consider refinancing.

"Households across the country are desperate for relief through interest rate reductions," he said.

"Lower fixed rates have already started appearing in the market with lenders competing for new customers. Now could be an opportune time for borrowers to secure a cheaper variable rate before the cash rate starts dropping."

As the February RBA meeting approaches, all eyes will be on whether policymakers opt to ease financial strain on mortgage holders or hold firm to prevent inflation from rebounding.

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