The Reserve Bank of Australia (RBA) cut its benchmark interest rates by 25 basis points to 4.10% on Tuesday, marking its first easing since November 2020. The move is a significant step towards easing policy, but the RBA remains cautious about further cuts.
The decision follows an extended period of 13 rate hikes aimed at taming inflation, which had held steady at 4.35% since November 2023. However, softening inflation has created room for the central bank to ease its monetary policy.
In a statement, the RBA said it was recognising progress on inflation, but remains cautious about further policy easing. The board indicated that any further withdrawal of monetary restriction would be gradual.
Senior APAC economist Abhijit Surya at Capital Economics forecast only two rate cuts in the current cycle, pegging the terminal cash rate at 3.60%. Market expectations were largely aligned with Tuesday’s decision, as government bonds rallied on anticipation of an interest rate cut.
The RBA has lagged behind major global central banks that started easing policy late last year. However, Australia’s inflation eased to 2.4% in the December quarter, down from 2.8% in the previous quarter. The RBA has pegged its medium-term inflation target between 2% and 3%.
The decision is seen as a positive move for the Labor government ahead of an election this year, which promises sluggish economic growth. The Australian dollar strengthened slightly to 0.6341 against the US dollar on Tuesday, while the ASX 200 index shed 0.54%.
Source: https://www.cnbc.com/2025/02/18/australia-central-bank-cuts-interest-rate-for-the-first-time-in-over-four-years.html