Australia’s central bank cut its interest rates for the first time in over four years on Tuesday, but cautioned that it was too early to declare victory over inflation. The Reserve Bank of Australia (RBA) reduced the cash rate by a quarter-point to 4.1%, marking a significant move towards easing monetary policy.
The decision comes as good news for Prime Minister Anthony Albanese, who is facing an election in May. However, the RBA’s cautious stance on further easing suggests that interest rates may not fall as far as markets had expected.
Governor Michele Bullock emphasized that today’s decision does not imply future rate cuts. She noted that the board needs more data to confirm a decline in inflation before making decisions about further easing. The RBA also warned of the risk of disinflation stalling if monetary policy is eased too much, too soon.
The Australian economy has been performing relatively well, with core inflation slowing to 3.2% and unemployment hovering at 4.0%. However, the central bank remains concerned about labor market pressures and the potential for further inflationary pressures.
Australian banks have also cut their interest rates by a quarter-point, in line with the RBA’s decision. The move is expected to provide relief for borrowers and support the housing market.
The RBA’s cautious stance on further easing reflects its desire to avoid over-easing monetary policy, which could lead to inflationary pressures. Instead, the central bank is focused on normalizing interest rates gradually, taking into account the state of the economy and labor market.
Source: https://www.reuters.com/markets/rates-bonds/australias-central-bank-cut-rates-cautious-further-easing-2025-02-18