Australia’s central bank yesterday reduced its benchmark interest rate for the first time since October 2020 as the nation’s inflation cools.
The Reserve Bank of Australia (RBA) reduced the cash rate by a quarter percentage point from 4.35 percent to 4.1 percent at its first board meeting of the year. The central bank had held the cash rate at 4.35 percent since November 2023.
The cut was widely anticipated after inflation rose only 0.2 percent in the December quarter last year and 2.4 percent for the calendar year. Annual inflation peaked at 7.8 percent two years earlier.
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“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the central bank’s board said in a statement.
RBA Governor Michele Bullock later advised against believing economic forecasts that several more rate cuts were expected this year. The board would next consider changing interest rates at its meeting on April 1.
“Some other central banks have cut interest rates quite sharply over the past year, but we have taken a different strategy to most,” Bullock told reporters.
“Our policy rate was not raised as much as many countries overseas. We judged that while inflation expectations remained anchored, we could take a bit longer to bring inflation back to the target band, but we could keep unemployment lower,” she added.
Unemployment in Australia remained at near-record low levels of 4 percent in December last year, up from 3.9 percent the previous year.
Bullock said that US plans to increase tariffs on trading partners had the potential to be bad for economic activity around the world.
“The tariff threats and what’s going on overseas is very uncertain and probably even worse, it’s unpredictable,” Bullock said.
The rate shift is a welcome development for Australian Prime Minister Anthony Albanese’s center-left Labor Party government which will seek reelection at elections due by May 17.
Australian Treasurer Jim Chalmers welcomed the independent board’s decision.
“This is the rate relief Australians need and deserve,” Chalmers said in a statement. “It won’t solve every problem in our economy or in household budgets but it will help.”
The high cost of living and a shortage of housing around Australia are expected to be major issues in the upcoming election campaign.
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