Major bank drops interest rates dramatically (2025)

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A major Australian bank has slashed fixed mortgage rates in a sign lenders are expecting big interest rate reductions from the Reserve Bank in coming months.

Macquarie Bank has cut its one to five-year rates by 20 basis points, with borrowers now able to fix their mortgage for two or three years at 5.19 per cent.

Those wanting more certainty for longer can fixed their home loan for four or five years at 5.39 per cent.

Outside of eco loans, Australia's fifth biggest lender, Macquarie, now offers the lowest fixed rates.

The major banks and the futures market are now expecting the Reserve Bank to cut interest rates again on May 20, before embarking on more cuts in 2025.

Canstar data insights director Sally Tindall said competition in the fixed-rate mortgage space was heating up.

'Macquarie has taken the knife to its fixed rates ahead of next month's RBA meeting as it ramps up competition in the fixed mortgage market,' she said.

Borrowers who fix now, however, could miss out on more relief for variable rate customers should the Reserve Bank keep on cutting interest rates.

The 30-day interbank futures market indicates the RBA cash rate will fall from 4.1 per cent now to 3.1 per cent by Christmas.

That means a Macquarie Bank borrower with a 20 per cent deposit, now on a 5.94 per cent variable rate, would miss out if they fixed at 5.19 per cent for two years, instead of waiting for their floating rate to drop to 4.94 per cent - assuming RBA rate cuts are passed on in full.

Even if the RBA only cut rates by 75 basis points, instead of 100 basis points as forecast by financial markets, Canstar said a variable rate would still be a better option than fixed.

It estimated a borrower with an average $600,000 mortgage, switching from the lowest variable rate of 5.59 per cent to a two-year Macquarie fixed rate of 5.19 per cent, would still pay $2,645 more in interest.

Bank Australia offers the lowest, three-year fixed rate of 4.94 per cent for new, highly energy efficient builds on homes powered by solar panels.

Australia's Big Four banks are all expecting a May 20 rate cut, but NAB is expecting an even bigger 50 basis point cut next month that would take the RBA cash rate down to 3.6 per cent for the first time since May 2023.

Westpac chief economist Luci Ellis, a former RBA assistant governor, said a 25 basis cut on May 20 was more likely - taking the cash rate to 3.85 per cent - because any global downturn as a result of tariff wars was less likely to hurt Australia, so big rate cuts will not be required to prime the economy.

'We do not regard an inter-meeting cut or a 50 basis point cut as plausible, contrary to some of the more breathless commentary,' Ms Ellis said.

'As we have been highlighting for some time, Australia is relatively less affected by US tariffs than some economies, and the hit to domestic growth is expected to be moderate.

'While the risks have clearly shifted to the dovish side, we do not expect the RBA's thinking to pivot directly from cutting reluctantly if at all, to going hard in May and signalling more.

'To do so would look panicky and is contrary to the limited RBA communication since the "Liberation Day" tariff announcements, which was much more circumspect.'

Official inflation data for the March quarter is due out on Wednesday next week, with a cut more likely if underlying inflation falls back within the RBA's 2 to 3 per cent target.

Macquarie Bank

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