RESERVE BANK DELIVERS LONG-AWAITED RATE CUT
* The Reserve Bank board decided on Tuesday to cut the cash rate by 25 basis points to 4.1 per cent, after no change since November 2023
* It’s the first reduction in monetary policy since late 2020, when the central bank cut rates by 15 basis points to the pandemic “emergency” level of 0.1 per cent
WHY THE BOARD DECIDED TO CUT
* The bank’s board in its accompanying statement said high interest rates had worked to bring aggregate demand and supply closer towards balance, resulting in a reduction in inflation
* In the December quarter, underlying inflation undershot RBA expectations at 3.2 per cent, indicating inflationary pressures were easing quicker than expected
* Growth in private demand has remained subdued while the rate of wages growth has slowed, further reducing the risk of inflation
* However, the board said ongoing tightness in the labour market contributed to an upward revision in its inflation outlook
* In its Statement on Monetary Policy, the RBA predicted underlying inflation to remain the midpoint of its 2-3 per cent target range beyond June 2027, after previously forecasting it would fall to 2.5 per cent by the end of 2026
WHAT PEOPLE SAID
* “It’s clear that higher interest rates have been working as anticipated, restricting economic activity and putting downward pressure on inflation. The board judges it’s time to reduce a little bit of that restrictiveness, but we cannot declare victory on inflation just yet. ” – RBA Governor Michele Bullock
* “Under Labor, inflation is down, wages are up, unemployment is low and now interest rates have started to come down too. This is the soft landing we have been planning for and preparing for but we know there’s more work to do.” – Treasurer Jim Chalmers
* “A typical Australian household has paid an extra $50,000, an extra $50,000 in interest rates than they had expected to pay. And that has been a huge impost, of course, on Australian families who have been doing it very, very tough.” – shadow treasurer Angus Taylor
* “As well as being a win for households, today’s decision was also a loss for the credibility of the Reserve Bank’s communication. Today’s cut is at odds with the consistent messaging of the Bank over the past year.” – Deloitte Access Economics partner Stephen Smith
* “The RBA still views monetary policy as being restrictive after the reduction in the cash rate. Interestingly, the RBA may have lowered their neutral estimates after refining how models account for the pandemic period.” – NAB Head of Market Economics Tapas Strickland
* “I agree with the RBA’s decision to cut the cash rate. But the decision to reduce interest rates appears unusual given the forecast revisions.” – Bank of Queensland Chief Economist Peter Munckton
* “The Reserve Bank’s decision to reduce the cash rate is an important step for our economy and will be welcome news for our borrower customers, providing some long-awaited relief from cost of living pressures.” – ANZ Group Executive Australia Retail, Maile Carnegie
* “Customers could use this as an opportunity to get ahead on their mortgage by putting the extra savings into their mortgage repayments, or into their offset account to help reduce the interest on their loan.” – Westpac Chief Executive, Consumer, Jason Yetton
* “This rate cut is long overdue but will not be nearly enough to help people who are really struggling.” – ACOSS Chief Executive Cassandra Goldie
WHAT HAPPENS NEXT
* All four big banks have promised to pass the cut on in full to variable home loan borrowers, effective from February 28
* Borrowers on an average mortgage of $641,416 will save over $100 per month in minimum repayments
* The RBA is expected to deliver a shallow cutting cycle, with most economists predicting between two and four cuts through 2025
* The board will release its next monetary policy decision on April 1
Jacob Shteyman
(Australian Associated Press)
