THE Reserve Bank of Australia (RBA) has lowered the official cash rate target to 4.1 per cent, marking the first reduction since November 2020.
The decision, announced after the RBA’s latest board meeting on February 18, aims to support economic growth while ensuring inflation remains under control.
The move reflects growing confidence that inflation is easing faster than anticipated. Underlying inflation was 3.2 per cent in the December quarter, down substantially from its 2022 peak. The RBA noted that subdued private demand, easing wage pressures, and businesses struggling to pass on cost increases have all contributed to this downward trend.
However, the central bank remains cautious about further rate cuts. Recent labour market data suggests conditions are tighter than expected, with measures of labour underutilisation declining.
Despite a slowdown in wage growth, productivity gains have remained weak, keeping unit labour costs elevated.
The RBA acknowledged that economic growth remains fragile, with weak output growth and slow private domestic demand recovery. While housing cost inflation is easing, there is uncertainty about household spending – a key driver of economic momentum.
The central forecast expects a gradual pickup in consumption as incomes rise, but the risk of a sharper economic downturn remains if spending lags further.
Internationally, geopolitical and policy uncertainties continue to weigh on global markets.
While most central banks are easing monetary policy, expectations for further rate cuts have moderated, particularly in the US.
Treasurer Jim Chalmers has urged landlords to pass on the rate cut to tenants, highlighting the need for broader cost-of-living relief beyond mortgage holders.
Meanwhile, economists have warned against excessive government spending in response to the rate cut, cautioning that fiscal stimulus ahead of a potential election could risk overheating the economy.
Despite the RBA’s move, many Australian households continue to struggle.
A Finder survey found that over a third of mortgage holders need at least a $500 monthly repayment reduction to regain financial stability.
Additionally, 1.595 million households remain at risk of mortgage stress, according to Roy Morgan data.
While the rate cut signals confidence in disinflation progress, the RBA has emphasized that returning inflation to its 2-3 per cent target remains the priority.
