Reserve Bank of Australia cuts rates as expected, but remains cautious on further policy easing

The Reserve Bank of Australia cut interest rates by 25 basis points to 4.1% on policy meeting today, in a widely expected decision.

Today’s rate cut is the first one since 2020 pandemic crisis and signaling that the RBA is entering policy easing cycle, which will provide some relief to borrowers.

However, policy makers will remain cautious about the prospects of further easing and warned that it is still early to declare victory over inflation, pointing to existing upside risks to inflation due to robust labor market.

RBA Governor Bullock cooled expectations for more aggressive rate cut in 2025, stating that today’s decision does not imply that future rate cuts along the lines suggested by the market are coming, and that monetary policy has been restrictive and will remain so after this reduction in the cash rate.

Bullock added that the board needs more data that inflation is continuing to decline before making decisions about the future.

Inflation, which accelerated higher in Australia later than elsewhere, ran at 2.4% in Q4 2024, returning to the target band of 2-3%, added to expectations for further easing.