The RBA has cut interest rates for the first time since November 2020, after keeping the rates at 4.35% for over a year.
Here are some key points regarding the RBA’s cash rate cuts:
- The RBA has announced a reduction of the cash rate by 0.25%, bringing it down to 4.1%.
- Borrowing rates were reduced by lenders in anticipation of a rate cut.
- It is anticipated that the RBA may hold rates in April, with potential cuts in May and August, bringing the cash rate down to a low of 3.6%, with another cut possibly next year.
- A household with a $750,000 loan could see their monthly repayments fall by $115 if their loan rate decreases by 25 basis points.
- Major lenders in Australia have announced they will pass on the full 25bps cut to their variable loan customers.
The RBA Cuts to 4.1%, But with Cautious Guidance
Toward the end of last year, the RBA gradually shifted from a hawkish stance on potential rate increases to a neutral position in November, and finally adopted a dovish approach during its December meeting. The minutes from that meeting indicated that “if incoming data aligns with or falls short of [RBA] expectations, it would eventually be suitable to start easing monetary policy tightness.”
As a result, with trimmed mean underlying inflation for the December quarter weaker than anticipated, the RBA has responded to its easing bias and shifted to cut rates. Essentially, the RBA noted that the faster-than-predicted fall in trimmed mean inflation has resulted in “more confidence that inflation is shifting towards the midpoint of the 2-3% target range.”
