If you've looked across major news sites or social media, you've probably seen people practically buzzing about interest rate cuts.

But for those familiar with the financial landscape (and absolutely no shade if you're not, we'll get to that), you'll know that neither the Reserve Bank of Australia nor any of the major banks have confirmed or denied any changes to their rates.

So, why is there so much talk about a cut? Here's what you need to know.

Interest rate cuts mean loans – like car loans, mortgages and personal loan – can become cheaper

Interest rate cuts are big news because they mean that some loan repayments could become cheaper.

When banks, lenders and credit unions decrease their interest rates, it often means that variable rate loans (these are loans that allow your interest to fluctuate) become cheaper to repay. This is because you need to pay less interest on the amount you borrowed.

At the beginning of 2022 before interest rates went up, a 25-year loan of $500,000 at 2% variable interest rate would have cost $2,120 per month to repay. But during 2022 and 2023, the Reserve Bank of Australia increased the cash rate by a total of 4.25%. Meaning that, the 2% variable rate in this scenario became 6.25% – and the monthly repayment is now $3,299. It's a huge jump in cost. In fact, in this scenario, the monthly repayment increased by more than 55%.

This has put immense financial pressure on anyone with a variable loan or fixed loan at post-2022 rate. So, naturally many people with loans are hoping for news on when interest rates will be cut. A cut will make the cost of borrowing cheaper for many people.

Interest rates are typically guided by the cash rate set by the Reserve Bank of Australia

Typically banks, lenders and credit unions increase or decrease their interest rates in line with the cash rate that is set by the Reserve Bank of Australia (RBA).

They never match exactly. For example, the current cash rate is 4.35% but CBA's standard variable rate (as of the time of writing) is 6.34%. But when the Reserve Bank lowers or increases the cash rate by 0.25% for example, many lenders will lower or increase by the same amount.

The RBA meets eight times a year to decide on what the cash rate should be. The next meeting is scheduled for 18 February. And it is at this meeting that many experts are expecting the RBA to deliver a cut to the national cash rate. A cut would likely see lenders also drop their variable interest rates.

Experts feel confident the Reserve Bank is cutting rates thanks to predictions from the Big Four banks

So, why exactly do so many people believe the RBA will deliver a cut in February? This is largely driven by the predictions of Australia's Big Four Banks.

Australia's major banks typically publish predictions on when they think interest rates could go up or down. This guidance can help customers make borrowing decisions. At the present, all Big Four Banks have predicted that the RBA will deliver a 0.25% cut to the cash rate in February.

There are a few other macro economic factors at play – including the American tariffs on steel and also on Chinese goods. Since Australia is a key supplier of raw materials to the world, tariffs like these could slow our economy into a recession. Cutting the cash rate would theoretically give people with loans more money in their pockets each month, which could stimulate the economy and keep us out of recession.

But the Reserve Bank raised rates to combat inflation – and core inflation not low enough yet

There are some that are still nay sayers. The Reserve Bank's previous governor, Phillip Lowe and now new governor, Michelle Bullock have both been resolute in their need to see inflation return levels of 2-3%.

The whole reason the RBA put the cash rate up in the first place was to bring down runaway and sticky inflation in Australia. The theory behind this is thus: when the cash rate is raised, some loans cost more to repay. This means that people with loans have less money to spend, and retailers and service providers will need to drop their prices to stay in business.

Quarterly inflation in Australia reached a high of 7.8% in December 2022. The RBA has maintained that they want to see inflation return to 2-3% before they would consider cutting the cash rate. The December 2024 quarterly inflation numbers came out at 2.4%, so within the target range.

However, the RBA do often look at the 'trimmed mean' or 'core inflation' which is the rate of inflation but without highly volatile items or items that fluctuate seasonally. This number is 3.2% – a figure outside the RBA's target range. For this reason, some people believe the RBA will make the conservative choice to leave the cash rate where it is.

When will we find out if the cash rate is cut?

The decision will be announced at 2:30pm AEDT on 18 February 2025.