Households and Labor relieved over RBA's cut to interest rates

The Reserve Bank of Australia has cut interest rates by 25 basis points to 4.1 per cent, the first drop since November 2020 and follows 13 successive rate rises.

The cut to the official cash rate was announced Tuesday afternoon (18 February) after the RBA’s first board meeting for 2025.

The welcome relief for mortgage borrowers is also a fillip for the federal government, which is looking to laud its economic credentials and heading into an imminent federal election.

A visibly jubilant Treasurer Jim Chalmers held a media conference immediately after the announcement, saying the rate cut was the cut Australians deserved.

“This is very welcome news for millions of Australians,” Mr Chalmers said.

“It’s a demonstration of the progress Australians have made together in this fight against inflation.

“We know that there is more work to do.”

The Treasurer wouldn’t buy into election speculation, however, saying the government’s Expenditure Review Committee was preparing to hand down a federal budget next month as planned.

“We’ve been in the Cabinet suite next door for most of today and most of yesterday preparing for and planning for a budget on 25 March,” he said.

“That’s what we’re working towards.

“We acknowledge the timing of the election is a matter for the Prime Minister, in consultation with his senior colleagues, but we’re working towards that budget.”

The Treasurer was keen to share the news that Australia’s four major banks have all agreed to pass on the rate cut in full to their borrowing customers.

“Each of them have made an announcement that each of the major banks will be passing on in full the benefits of the decision taken by the independent Reserve Bank today,” Mr Chalmers said before adding that he wasn’t taking credit for that welcome development.

RBA Governor Michele Bullock warned that the cut didn’t come with any guarantees of further reduction in interest rates.

“We cannot declare victory on inflation just yet,” she said.

She said it doesn’t imply further rate cuts are coming.

The RBA Governor said in the December quarter that underlying inflation was 3.2 per cent, which suggests inflationary pressures are easing a little more quickly than expected.

“There has also been continued subdued growth in private demand and wage pressures have eased,” she said.

“These factors give the board more confidence that inflation is moving sustainably towards the midpoint of the 2 to 3 per cent target range.”

The Reserve Bank acknowledged that households with home loans were hurting but added that high inflation causes more pain.

“We have made one cut, and at the margin, I understand that will be helpful for some people,” Ms Bullock said.

“We focus a lot on mortgage holders, and yes, they’re hurting … But the fact that prices have gone up by 18 per cent over the last couple of years is hurting them, it’s hurting all of the renters, it’s hurting all the low-income people, it’s hurting everyone.”

But the Governor said while the market was almost unanimous in predicting a rate cut would be handed down today, it was far from being a certainty.

“It wasn’t a lay-down misère,” she said.

“It was a difficult decision in the sense there’s arguments on both sides.

“The board had an active debate on the arguments on both sides on this, but in the end, came to the view the better decision was to ease a little bit of the restrictiveness, still maintain some restrictiveness, but ease a little bit of restrictiveness in recognition we’re making progress towards our goal.”

The RBA’s board decision was unanimous.

The Federal Opposition welcomed the rate cut, saying Australian families had earned it.

However, the Coalition was also quick to deny the government any credit for it.

Shadow treasurer Angus Taylor said Labor shouldn’t be thanked for the RBA’s decision.

“It has been a long time coming,” Mr Taylor said.

“We’ve since interest rates in countries around the world of 1 and 2 per cent … and Australians have been suffering.

“Despite the welcome cut today, it’s a long journey back to the standard of living Australians enjoyed before these cuts began… The living standard collapse in Australia has been greater than in other countries.”

Original Article published by Chris Johnson on Riotact.