The Reserve Bank of Australia (RBA) finally announced an interest rate cut, taking the official cash rate from 4.35% to 4.1%. The treasurer, Jim Chalmers, confirmed that the four major banks will pass on the full benefits of the decision to mortgage holders.
While the rate cut may seem insignificant, it’s a welcome relief for those struggling with large debt. In April 2022, the cash rate rose from just 0.1%, adding thousands of dollars a month to mortgage repayments. However, this rate cut marks a significant shift in the RBA’s stance, which was previously cautious about the economy.
The RBA now expects inflation to return to the 2-3% range sooner than initially thought, with underlying inflation expected to reach the target zone by June this year. This is a full year ahead of previous forecasts.
However, experts warn that mortgage holders may be disappointed by the rate cut’s magnitude. The RBA remains cautious on prospects for further policy easing, and its neutral cash rate – a sweet spot where monetary policy is neither too tight nor too stimulatory – is difficult to predict.
The bank acknowledges economic uncertainty in 2024, including the US election and growing trade tensions. Despite this, the labour market has remained resilient, with unemployment at just 4%. The RBA has reduced its expectations for peak unemployment to 4.2%, down from 4.5%.
Financial markets expect rates to head slowly towards 3.5% by the end of the year, with another three cuts of 0.25 percentage points expected. Mortgage holders will be hoping that this outlook is accurate.
Source: https://www.theguardian.com/commentisfree/2025/feb/18/rba-reduces-interest-rates-but-dont-hold-your-breath-for-too-much-more-this-year