Mortgage holders crossing their fingers RBA will cut interest rates

Mortgage holders will be eagerly watching the Reserve Bank of Australia's first meeting of the year with a cut to the cash rate expected for the first time in five years.

The RBA board will announce its decision on interest rates at 2.30pm tomorrow, after weeks of commentary by economists.

Many are predicting a cut of 25 basis points that would bring the cash rate back to 4.1 per cent.

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But John Kehoe, economics editor of the Australian Financial Review, told Today this morning he was taking a cautious approach.

"It's a finely balanced call for the Reserve Bank tomorrow. The markets say it's 90 per cent chance, I'm more in the 60-40 camp that they cut."

Kehoe said any cut would only offer marginal help for mortgage holders and the national housing shortage.

"It might help a little bit of confidence and construction costs at the margin ... But I don't think it's going to make a big difference to home building in the short term."

The official cash rate has been sitting at 4.35 per cent since November 2023.

Economists are confident hard-pressed households and businesses will finally receive some relief on interest rates from the RBA tomorrow.

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Experts argue that the fall in inflation within the RBA target range gives its board room to slash the official cash rate. If there is a cut, mortgage holders must then wait and see whether their banks will pass on that decision.

The RBA decision will also be scrutinised by the federal government as Prime Minister Anthony Albanese weighs when to call an election.

He must call it by May, and an interest rate cut would go some way to reinforcing his Labor government's credentials om managing the economy.

How much the average homeowner could save

Aussies with the average home loan of $641,416 will save over $100 a month, if the RBA cuts the cash rate by 25 basis points tomorrow, and that rate cut is passed on in full by the lender.

They will see their mortgage payments drop from $3887 per month to $3784 (a saving of $103).

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Those who just purchased a home will save even more. Buyers of Sydney's average home of $1,132,565 with 80 per cent loan to value ratio (LVR) would save $145 monthly, or $1740 annually.

Buyers of Perth's average home of $724,679 with 80 per cent LVR would save $93 monthly, or $1116 per year.