The Reserve Bank of Australia has delivered long-awaited relief to households, cutting the official cash rate by 0.25 percentage points to 4.1% – the first reduction since November 2020.
The decision, announced after a two-day board meeting in Sydney, follows 13 consecutive rate hikes between May 2022 and November 2023, which pushed borrowing costs to a 13-year high of 4.35%.
RBA Governor Michele Bullock cited a “substantial” decline in inflation, which fell to 3.2% by the end of 2024, following its 7% peak in 2022, as the key factor behind the move. The board noted “subdued growth in private demand” and easing wage pressures, expressing confidence that inflation is trending toward the 2–3% target range.
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Mortgage holders will see swift benefits, with Westpac, NAB, and Commonwealth Bank confirming they will pass on the full 0.25% cut to variable-rate customers.
While banks are not legally obligated to follow the RBA’s lead, CBA CEO Matt Comyn emphasised customer expectations to the ABC’s The Business last week, stating the bank is “acutely aware” of the need to align with the central bank’s decisions.
The rate cut arrives amid a fragile economic backdrop, with GDP growth stagnating and household disposable income suffering its sharpest decline in over 50 years.
Governor Bullock cautioned that risks remain “on both sides” of inflation, but emphasised the board’s view that current policy settings remain restrictive enough to anchor price stability.
The decision comes months before a federal election, with Prime Minister Anthony Albanese likely to frame the cut as evidence of economic recovery. However, analysts warn that cost-of-living pressures persist, with prices still elevated despite slowing inflation.
The Australian dollar dipped slightly to 63.44 US cents ahead of the announcement, while the ASX 200 fell 0.6% amid broader market caution.
Economists anticipate further cuts in 2025, with markets pricing in up to three reductions by year-end. However, the RBA has signaled a cautious approach, stressing future decisions will remain data-dependent.