RBA slashes interest rates to 4.1% in its first cut since the early days of the pandemic
Guardian3 days ago
Australia Cuts Rates For First Time in 4 Years
Above: Michele Bullock, governor of the Reserve Bank of Australia (RBA), during a news conference at the bank's head office in Sydney, Australia, on Tuesday, Feb. 18, 2025. Image copyright: Brendon Thorne/Bloomberg via Getty Images
The Facts
The Reserve Bank of Australia (RBA) reduced its cash rate by 25 basis points to 4.10% on Tuesday, marking its first rate cut since November 2020, as inflation showed signs of easing more quickly than expected.
The decision came after Australia's headline inflation fell to 2.4% in the December quarter from 2.8% in the previous quarter, while the trimmed mean measure fell to 3.2% from 3.6%, indicating progress toward the 2-3% target range.
All four major Australian banks — Commonwealth Bank, NAB, Westpac, and ANZ — have announced that they will pass on the full rate cut to borrowers, with changes taking effect from late February to early March.
The Spin
Narrative A
The RBA's decision to cut rates to 4.1% arrives as a perfectly timed balm for mortgage-stressed households, offering welcome relief. With inflation cooling and unemployment holding steady at 4%, the RBA's patient approach has paid off, allowing them to ease the burden on struggling families while maintaining economic stability. Major banks' swift adoption of the full cut further amplifies its positive impact.
Narrative B
The RBA's rate cut may prove dangerously premature, risking a potential inflation resurgence that could force even steeper hikes later. With core inflation still at 3.3%, a robust job market, and persistent labor shortages driving wage pressures, the decision seems more politically expedient than economically sound. The short-term relief it may result in could lead to a "disaster situation" requiring much more painful corrections.