RBA Announces First Cash Rate Decision of 2025

The Reserve Bank of Australia (RBA) has announced a reduction in the cash rate by 0.25 percentage points, bringing it down to 4.10%. This decision, made during the RBA’s February meeting, marks the first rate cut since November 2020.

The RBA’s move comes in response to a significant decline in inflation since its peak in 2022. In the December quarter, underlying inflation was recorded at 3.2%, indicating that inflationary pressures are easing more rapidly than anticipated. Additionally, there has been subdued growth in private demand, and wage pressures have lessened. These developments have increased the Board’s confidence that inflation is moving towards the midpoint of the 2–3% target range.

However, the RBA remains cautious. Recent labour market data suggest unexpected strength, implying a tighter labour market than previously assessed. Consequently, while acknowledging the positive progress on inflation, the Board is wary about the prospects of further policy easing.

In response to the RBA’s decision, Australia’s major banks, including Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Westpac, and ANZ Group, have announced reductions in their interest rates by 25 basis points. These changes are set to take effect from late February to early March 2025.

For homeowners, this rate cut translates to reduced minimum monthly repayments, offering financial relief to many. However, experts advise borrowers to proactively contact their banks to adjust repayment plans and consider maintaining higher repayments to save on interest over time

While the rate cut provides immediate relief to borrowers, some economists express concern over potential long-term implications. There is apprehension that an early rate cut, driven by optimistic economic recovery projections, could reignite inflationary pressures, potentially leading to future rate hikes.

RBA Governor Michele Bullock emphasized that this decision does not signal a series of forthcoming rate cuts. The Board will continue to monitor economic indicators closely to ensure that inflation remains within the target range and that the labour market maintains stability.

In summary, the RBA’s decision to lower the cash rate aims to balance the need for economic stimulus with the goal of maintaining inflation within the desired range. Borrowers are encouraged to assess their financial situations and consult with their financial institutions to make informed decisions in light of these changes.