The Reserve Bank of Australia (RBA) announced it had cut interest rates by 25 basis points to 4.10%. This is the first easing since November 2020, when the central bank cut rates while grappling with the pandemic’s economic slowdown.
Australia’s central bank announced it cut rates for the first time since the pandemic. The Reserve Bank Board warned that it was cautious about further cuts, citing economic uncertainties.
Australia’s central bank eases interest rates by 25 basis points
The Reserve Bank Board (RBA) announced that it welcomed the progress on inflation by cutting inflation rates. The board signaled that any further withdrawal of monetary restriction would remain gradual as it remained cautious.
The Reserve Bank of Australia has reduced the cash rate target for the first time in over four years by 25bps to 4.10% pic.twitter.com/4ORubT0kMj
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The Central Bank hiked its interest rates thirteen times between May 2022 and November 2023 to curb inflation. The bank held the cash rate for over a year as global markets gradually recovered from the post-pandemic economic slowdown.
In its post-meeting statement, the board acknowledged that inflation had decreased from the 2022 peak. It added that inflation was at 3.2 percent in the December quarter, signaling that inflationary pressures were easing quicker than expected.
The board noted continued subdued growth in private demand while wage pressures eased. It highlighted these factors that gave it more confidence that inflation was moving closer to the midpoint of the 2-3 percent target range.
The RBA noted that the strength of the labor market held back the cash rate’s decline in the past four years. It reiterated that unemployment hovered near a historic low of 4.0% in December 2024. The board noted that recent labor market data suggested the market was tighter than previously thought.
Michele Bullock, RBA governor, commented that the rise in interest rates from the 2020 lows meant households paying mortgages were hurting. She acknowledged that high inflation caused increased interest rates, and prices had gone up by 18% in the last couple of years.
Bullock noted that these factors translated to more pain for renters, homeowners, and low-income individuals. The director speculated that the one cut could be helpful to such families.
Despite the recent cut, the board emphasized that its priority remained to return inflation to target sustainably. It mentioned it could not guarantee further cuts but would continue to make additional decisions based on the economic data it received.
Analysts project further rate cuts in 2025 as banks announce changes
Senior APAC economist at Capital Economics noted the RBA’s hawkish tone in its rate cuts announcement. The economist forecasted the recent easing would be short-lived. He projected the RBA would only cut interest rates twice in two rate cuts in the current cycle, pegging the terminal cash rate at 3.60%.
Moody’s Analytics economist Harry Murphy Cruise also noted that the policy statement indicated that if monetary policy was eased too much, disinflation could stall. He added that he did not expect another cut until July.
Other analysts, such as Callum Pickering, revealed they expected more cuts as soon as May. Pickering noted that the RBA rarely delivered a solitary rate hike or cut, citing they often arrived in groups.
Shortly after the announcement, banks such as Westpac ANZ, NAB, and the Commonwealth Bank announced they would pass on the cut in official rates to mortgage holders. They added that some changes would be fully implemented by March 2025.
Pickering commented that every mortgage holder was presented with a different set of circumstances that would determine when and how they could take advantage of the interest rate cuts. He added that extra mortgage repayments and fixed mortgage rates complicated the impact of mortgage rate cuts.
According to LSEG data, the yields on Australian 10-year government bonds dropped nearly 20 basis points since January 13 to 4.50% on Tuesday. Government bonds reportedly rallied as the market expected reduced interest rates after the RBA reported decreased inflation rates in December 2024.
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Source: https://www.cryptopolitan.com/rba-cuts-interest-rates-since-2020/