RBA cuts cash rate for first time since November 2020
The RBA has reduced the official cash rate by 0.25 per cent to 4.10 per cent, providing relief to mortgage holders amid easing inflation rates.
The Reserve Bank of Australia (RBA) has cut interest rates for the first time since November 2020, bringing relief for millions of under-pressure mortgage holders. The central bank reduced the cash rate by 0.25 per cent, taking it down to 4.10 per cent.
The cut was widely anticipated by economists and markets after inflation data showed a significant drop. Headline inflation fell to 2.4 per cent in December, while the RBA's preferred underlying inflation eased to 3.2 per cent.
The RBA board indicated that the data suggested inflationary pressures were "easing a little more quickly than expected", expressing confidence that inflation was "moving sustainably" toward the midpoint of the target range of 2 to 3 per cent.
However, there is a cautionary note from the RBA regarding "upside risks", which include unexpectedly strong labour market data. This suggests that the central bank might not provide the expected rate cuts that mortgage holders are hoping for.
The RBA explained, "While today's policy decision recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing."
For mortgage holders, today's cut means those with an average home loan of $641,416 could save $103 per month on their repayments, translating to $1,236 per year, provided banks pass on the full 0.25 per cent reduction.
Melbourne mortgage holder James Smolski welcomed the news, sharing that he purchased his first home with his fiancée Jess in 2022 for just under $600,000. He noted that their variable interest rate has increased from about 3 to 7 per cent, forcing them to tighten their budget.
"It's definitely a help. We haven't decided yet whether to increase our payments or save it for our wedding," Smolski commented.
Following the announcement, Westpac, NAB, and Commonwealth Bank were among the first to implement the interest rate cut. Canstar data insights director Sally Tindall expects other banks to also pass on the reduction to borrowers, stating it could trigger a "game of bull rush".
