As Australia’s central bank holds the official cash rate steady, a wave of independent rate cuts from domestic lenders has upended the country’s mortgage market, driven by intensifying competition to win over home loan borrowers. In an unexpected shift that defies the Reserve Bank of Australia’s (RBA) June decision to keep the cash rate at 4.35%, 18 lenders have moved to slash variable home loan interest rates for existing and prospective customers, with several more cutting fixed rate offerings.
Data from finance comparison platform Canbar shines a light on the core dynamic driving this unconventional move: cutthroat price competition forcing providers to undercut one another to gain market share. “Competition among lenders continues to create opportunities for some households to cut their borrowing costs,” noted Sally Tindall, Canstar’s director of data insights. Tindall added that while negotiating a lower rate with a current lender can deliver modest savings, the largest reductions still typically come from refinancing a home loan with a new provider.
The most prominent cut highlighted by Tindall came from Bendigo Bank, which reduced its lowest variable rate for refinancing customers by 15 basis points, bringing the rate down to 5.89%. Following this round of cuts, 15 separate lenders now offer home loan rates below 5.9% — a threshold that was far less common just months earlier. Fixed rate home loans have also seen downward movement, with five lenders rolling out reduced fixed rate terms for new borrowers. AMP Bank led the fixed rate cuts, trimming some of its long-term fixed rates by as much as 50 basis points.
This wave of private sector rate cuts comes even as the RBA opted to hold the official cash rate at its June monetary policy meeting, with the board voting unanimously to keep rates steady despite inflation remaining well above the central bank’s 2-3% target. Recent official data from the Australian Bureau of Statistics puts annual headline inflation at 4.0% as of May, down slightly from 4.2% in April. The cooling of headline inflation is largely attributed to the Australian government’s temporary fuel excise halving, which drove an 11.9% drop in automotive fuel prices in May following a 7.0% decline in April.
However, core inflation — the RBA’s preferred indicator that strips out volatile price movements for items like fuel — tells a less encouraging story. The trimmed mean inflation rate rose 0.4% month-on-month in May, accelerating from a 0.3% increase in April, pushing the annual core rate to 3.6%. RBA governor Michele Bullock emphasized after the June rate decision that inflation remains unacceptably high, and left the door open for future rate hikes if necessary. “I want to be very clear that inflation remains too high,” Bullock said. “Rate hikes remained on the table if that is what is required to bring inflation down.”
The conflicting signals from inflation data have split economic experts over the RBA’s next policy moves, with forecasters divided between expecting extended rate holds, gradual cuts, and additional hikes to curb persistent price growth. HSBC chief economist Paul Bloxham expects the RBA will hold rates steady for a prolonged period, in large part due to a cooling housing market that is already expected to dampen consumer spending and ease inflationary pressure. “Although the RBA does not target housing prices, the housing price correction will have implications for monetary policy,” Bloxham explained. HSBC’s base case forecasts housing prices to decline in the second half of 2026, and fall 2-6% over the full 2027 calendar year. “At some level, the cooling housing market will be helpful for the RBA if it slows down consumer spending, as this will also help to take some more pressure off inflation, which is too high,” he added.
Three of Australia’s four largest major banks also predict rates will remain on hold until 2027, with only subtle differences in their outlooks. Commonwealth Bank projects the RBA will hold rates steady through the rest of 2026, though it acknowledges rates could rise if inflation continues to exceed forecasts. National Australia Bank expects the RBA to hold before starting gradual rate cuts in the second quarter of 2027, while Australia and New Zealand Banking Group forecasts two rate cuts will be implemented over 2027.
Westpac, the only major bank to break ranks, is forecasting two more 25-basis-point rate hikes before the RBA pauses for a 12-month period. Westpac chief economist Luci Ellis argues that persistent above-target inflation makes additional rate increases likely before the end of the year. “We still regard our two-hike track as the most appropriate base case view, given the inflation outlook,” Dr Ellis said in comments late last week. Ellis pointed to two key factors that could keep inflation higher than policymakers expect: lingering pass-through effects from recent fuel price increases to other consumer goods and services, and a larger-than-expected increase in minimum and award wages that could put upward pressure on broader labor costs. “If we are right about the inflation profile from here, the RBA will be surprised on the upside,” she added. “We therefore retain our view that further rate hikes will occur in the following meetings (in August and September).”