The Reserve Bank of Australia (RBA) has cut interest rates for the first time in more than four years, signalling Australia's economy has turned a corner in a long and enduring battle against sustained high inflation.Delivering its decision this afternoon, the RBA board said the cash rate target will be reduced by 25 basis points, from 4.35 per cent to 4.1 per cent.For the average Australian mortgage holder, today's decision will see the minimum repayments on a $600,000 mortgage drop by $92 a month.LIVE UPDATES: Live reaction as the Reserve Bank of Australia hands down its decision
Delivering its decision this afternoon the RBA board said the cash rate target will be reduced by 25 basis points, from 4.35 per cent to 4.1 per cent. (9News)That figure rises to $115 a month for a $750,000 loan or $154 per month for a $1,000,000 loan.Delivering the board's monetary statement, RBA Governor Michele Bullock said now was the right time to add some stimulus to the economy."The Board's assessment is that monetary policy has been restrictive and will remain so after this reduction in the cash rate," the board said."Some of the upside risks to inflation appear to have eased and there are signs that disinflation might be occurring a little more quickly than earlier expected."There are nevertheless risks on both sides."
The property market in Australia has defied expectations, with house prices rising despite hikes to interest rates. (RHETT WYMAN)Despite this, the board remains cautious."The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range," the monetary statement reads."In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook."The big four banks, Westpac, Commonwealth Bank of Australia, ANZ and NAB, have followed suit and passed on the 0.25 per cent rate cut to borrowers.Bullock, at her post-decision press conference, said the central bank has grown confident with inflation easing into its two to three per cent target but quelled hopes for further cuts in the months ahead."Today's decision does not imply that further rate cuts along the lines suggested by the market are coming," she said."We removed to cautionary increase we put in 2023 to a level that's still restrictive."The board needs more evidence that inflation is continuing to decline before making decisions about the future path of interest rates."The board is very alert to upside risks that could derail the deflationary process."
The big four banks, Westpac, Commonwealth Bank of Australia, ANZ and NAB, have followed suit and passed on the 0.25 per cent rate cut to customers. (Supplied)
How much relief a rate cut would provide
How much relief borrowers will receive depends on the size of their loan.According to Canstar, someone with a $600,000 mortgage will see their minimum repayments drop by $92 a month.The figure rises to $115 and $154 per month for $750,000 and $1,000,000 loans respectively.Sally Tindall, data insights director at Canstar, said borrowers who could afford to keep their repayments the same would benefit in the long run."While many people will use this relief to help balance the household budget, those who are in a position to keep their repayments at today's level could benefit in the long run," she said."CBA and Westpac expect the cash rate will be cut a total of four times, down to a neutral level of around 3.35 per cent."If this happens and banks pass on each cut, a borrower with a $600,000 loan and 25 years remaining could potentially save over $80,000 in interest charges over the remainder of their loan by keeping their mortgage repayments exactly the same."If you can grit your teeth and tip any savings into your home loan, you'll thank yourself down the track."
Treasurer Jim Chalmers fronted the media following the decision. (9News)
Rate cut is what Australians 'need', treasurer says
Treasurer Jim Chalmers fronted the media following the decision, saying Australians deserved the much-needed relief. "This is the rate relief that Australians need and deserve," he told reporters this afternoon."Now, we know that it won't fix any and every challenge we have in our economy and household budgets, but it will help."It's a demonstration of the progress that Australians have made together in the fight against inflation."That progress that we have made has been substantial, it is now sustained, and it's reflected in the decision taken by the Reserve Bank today."
The RBA decision will be scrutinised by the federal government as Prime Minister Anthony Albanese weighs when to call an election. (Alex Ellinghausen)The RBA decision will be scrutinised by the federal government as Prime Minister Anthony Albanese weighs when to call an election.He must call it by May, and the interest rate cut would go some way to reinforcing his Labor government's credentials on managing the economy.
Analysis: What it means for the government
According to 9News' political editor Charles Croucher, the cut is validation for the federal government."They have something to show and that is a rate cut now. Did it come fast enough? Is it going to be large enough? Who knows," he said."What this does give them though, is a springboard moving forward to an election, because that's the next thing we all have to watch…"The other thing this has done, and give credit to Michele Bullock and her team, as well as the treasurer, it's shown that you can get rates down while also keeping unemployment down, because that was going to be the big hurdle for the Reserve Bank to, in a way, ignore that unemployment number."There hasn't been that pain, there hasn't been that recession. And now hopefully there are better times ahead."