RBA expected to cut interest rates in October

By Mozo · · 3 min read
Fact Checked
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After three months of holding the official cash rate steady at 3.50%, the Reserve Bank of Australia is expected to cut interest rates by 25 basis points when it meets this coming Tuesday, 2 October, 2012.

Banks pre-empting Reserve Bank

In anticipation of this move, many banks have recently announced cuts to their fixed rate home loans, competing fiercely with each other to secure new customers.

Over the past two months, 59 of the 75 home loan providers in Mozo's database have dropped their fixed home loan rates. This includes two of the Big 4 banks: Commonwealth and Westpac, with the latter this week dropping its three-year fixed rate by 30 basis points to 5.54%, making it the cheapest Big 4 fixed rate option on the market.

What's expected?

Most analysts are predicting a 25 basis point cut in October, but the Reserve Bank is widely tipped to further slash rates by 50 points over the next year, 25 of these by the end of 2012.

Westpac Chief Economist Bill Evans has predicted October's cut will be followed up immediately by another 25 point reduction in November.

Solomon Lew, former RBA board member and chairman of Premier Investments, has added his voice to those advocating for and predicting further cuts, warning that if rates are not reduced by at least 50 basis points by Christmas, retailers and small businesses will suffer.

On the flip side, Commonwealth Bank senior economist John Peters, told the Sydney Morning Herald that if he had to choose a month, he'd choose November as the month that the RBA would drop rates.

The bottom line: what does all this mean for borrowers?

Consider the following:

On one hand it might seem like a fab time to snap up a fixed rate home loan, with banks slashing rates all over the shop, but the Reserve Bank's rates are only predicted to continue to drop. This, of course, leaves open the possibility of further rate cuts from the banks, including the Big 4.

On the other hand, however, assuming the RBA does continue to cut rates, the banks are under no obligation to follow suit. Certainly, banks will be under more pressure to reduce their rates in the wake of the predicted Reserve Bank decision, but as we all know all too well, the chances of any such cuts being passed on in full are pretty negligible.

In terms of variable rate home loans, let's do some maths. ANZ is offering a variable rate of 6.80%. In the (very unlikely) event of a 25 point RBA rate cut being passed on in full by ANZ, it still falls very short of ME Bank's market-leading 5.39% three year fixed rate.

The bottom line? Now is a good time to lock in a fixed-rate home loan, but with talk of back-to-back cuts, it is completely possible that you'll be able to get a better deal in six months, or even a year. Shop around, be cautious and get informed.

And remember, if the RBA does cut rates on Tuesday, we'll be keeping track of the movements and publishing our naughty or nice table so that you can find out which banks pass on the cut in full and those that don't.

Any good news for savers?

Because we're optimists here at Mozo, we're gonna go ahead and say that the savings glass is very much half full.

If the Reserve Bank acts as predicted and cuts rates, you can pretty much guarantee that savings accounts and term deposit rates will follow suit.

But if you act super-soon (as in, before the RBA's decision), you can lock your money away in a term deposit with a fab rate. UBank is looking the best for one year term deposits, sitting pretty at 5.21%. If you're looking for a longer-term commitment, Teachers Mutual Bank is offering 5.10% for a three year deal, and RaboDirect is packing a punch with 5.40% for five years.

Keep in mind that on-call savings accounts are another great option for all you savy savers and currently, the rates offered on these accounts are substantially better than those offered on term deposits. The RAMS Saver account is leading the pack at 5.75%, which is over 50 basis points higher than UBank's one year term deposit account.

Read last month's Reserve Bank interest rates update.

Home loan comparisons on Mozo

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Last updated 27 July 2024 Important disclosures and comparison rate warning*

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    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Basic Home Loan

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    $3,043
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    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Neat Home Loan

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  • Special Real Deal Home Loan

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    Refinancers or first home buyers pay no monthly or annual fees. Up to $3,000 cashback when you complete your home loan application online. $2,000 cashback on loans ≥$250K; or $3,000 cashback on loans ≥$500K. LVR ≤80%. T&Cs and credit criteria apply.

  • Optimum Fixed Rate Home Loan

    • Owner Occupier
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    6.34 % p.a.
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    Lock in a competitive interest rate and enjoy peace of mind for the fixed period. Available for owner occupied new and refinanced home loans with at least 20% deposit. Split option available as well as offset and redraw. Noapplication, ongoing or banking fees. Third Party fees may be applicable - payable within loan repayments. Extra repayments up to $20K per annum permitted. Apply online, 100% member owned credit union.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
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    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • OMG Home Loan

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    5.99 % p.a.
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    6.02 % p.a.
    Initial monthly repayment
    $2,995
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    BCU Bank’s OMG owner occupied home loan offers a variety of great low rates depending on your deposit. Save with no ongoing annual fees. Access your extra payments when you need to through the redraw facility. Pre-approval valid for 3 months.

  • Flex Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR <60%
    Interest rate
    5.99 % p.a.
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    $2,995
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    Competitive Fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% deposit required.

  • Express Home Loan

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    Get online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

  • Neat Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <60%
    Interest rate
    6.09 % p.a.
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    6.11 % p.a.
    Initial monthly repayment
    $3,027
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    Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.

  • Special Real Deal Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
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    6.09 % p.a.
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    Comparison rate
    6.13 % p.a.
    Initial monthly repayment
    $3,027
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    Refinancers or first home buyers pay no monthly or annual fees. Up to $3,000 cashback when you complete your home loan application online. $2,000 cashback on loans ≥$250K; or $3,000 cashback on loans ≥$500K. LVR ≤80%. T&Cs and credit criteria apply.

  • Basic Home Loan

    • Owner Occupier
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    • Principal & Interest
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    6.14 % p.a.
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    Initial monthly repayment
    $3,043
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    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

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  • Offset Home Loan

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  • Basic Home Loan

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  • Offset Home Loan

    • Fixed
    • Owner Occupier
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  • Fixed Rate

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    Interest rate
    6.54 % p.a.
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    Initial monthly repayment
    $3,174

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.