Households saving rather than spending as Reserve Bank considers another rate cut

Borrowers are stashing away Reserve Bank interest rate cuts rather than splurging the spare cash, the biggest lender has revealed as the RBA prepares to hold rates steady for at least another month to be sure inflation pressures are under control.

Data from the Commonwealth Bank, which has $392 billion in mortgages on its books, shows 11 per cent of its home buyers reduced their repayments after the Reserve sliced the official cash rate by a quarter of a percentage point at its August meeting.

Since the Reserve Bank started cutting rates in February, it has taken the cash rate down from 4.35 per cent to 3.6 per cent. On an average $600,000 mortgage, that reduction would reduce monthly repayments by $300.

But CBA executive general manager for home buying Marcos Meneguzzi said in almost every age group, people were leaving their repayments unchanged rather than asking for a repayment cut.

First home buyers are the least likely to reduce repayments – 8 per cent of the CBA’s customers in this age group moved to ease their financial stress.

People aged between 31 and 40 have been the most likely to reduce their repayments: 14 per cent of those had made the move. The same percentage of people living in NSW and the ACT, most likely to have the largest mortgages in the country, have contacted the CBA for financial relief.

Meneguzzi said there had been little difference in the wake of each RBA rate cut this year.

“What really stands out is the consistency. Following each rate cut this year, the percentage of customers reducing their direct debit repayments has been almost identical at the same point in time,” he said.

“That is even as the potential savings from reducing repayments have increased.”

The CBA’s data is in line with reports from other banks that have said relatively few customers had sought to reduce their repayments. All major banks have passed on the RBA’s three rate cuts in full.

As the Reserve has started cutting interest rates, it has expressed concern that borrowers could use the opportunity to use the extra cash to spend and put upward pressure on inflation.

The RBA’s own liaison program has found consumers remain cautious, with a strong focus on value and pricing. In the bank’s most recent quarterly monetary policy statement, it says retailers are reporting shoppers need targeted discounting, promotional campaigns and new product launches to get them through their doors.

But recent monthly inflation data, which showed consumer prices up by 3 per cent over the 12 months to the end of August plus ongoing turmoil out of the United States – including last week’s decision by President Donald Trump to slap tariffs of up to 100 per cent on goods from pharmaceuticals to kitchen cupboards – has left financial markets and economists expecting the RBA to leave interest rates steady after its two-day meeting, which begins on Monday.

Markets, which have had a tough time this year accurately predicting the Reserve’s moves, believe there is now just a 50-50 chance the Reserve will use its November meeting to cut rates.

AMP chief economist Shane Oliver believes the bank will ultimately have to cut rates at least once this year and then early in 2026.

He said by the Reserve’s own estimates, the current cash rate was still holding back the economy as evidence showed the jobs market starting to soften.

Another issue facing the RBA is the actions of its American counterpart, the Federal Reserve, which cut interest rates this month and is expecting to keep easing US monetary policy.

Lower US rates could push the Australian dollar, now around US66¢, towards US73¢, which would cause problems for the Reserve and the domestic economy.

“If the Fed continues to cut in line with market expectations and the RBA holds, it will see the Fed funds rate fall well below the RBA’s cash rate, possibly putting substantial upwards pressure on the Australian dollar, which will bear down on Australian growth and inflation, putting pressure on the RBA to cut,” Oliver said.

Westpac chief economist Luci Ellis said while the timing of future rate cuts was uncertain, reductions in November, February and May appeared to be on the cards.

“Inflation is within the target range, and the labour market is broadly fully employed and softening gradually. We do not think this combination warrants tight monetary policy,” she said.

“At a 3.6 per cent cash rate, monetary policy is probably not that tight, but some reduction would still be needed to avoid a needless undershoot of the inflation target.”

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