Two words from Reserve Bank boss that have spoiled the party for every Aussie with a mortgage - after interest rates were slashed for the first time in four years
- Reserve Bank cuts rates for first time since 2020
Reserve Bank Governor Michele Bullock has urged Aussie mortgage holders to 'be patient' after the first official interest rate cut in more than four years.
The Reserve Bank has eased the cash rate by 25 basis points to 4.1 per cent, noting inflation had eased.
This marked the first downward move since November 2020 and followed a run of 13 punishing increases in 18 months to tackle inflation.
'Some of the upside risks to inflation appear to have eased and there are signs that disinflation might be occurring a little more quickly than earlier expected,' the RBA board said on Tuesday afternoon.
However, Ms Bullock declared the fight against inflation was far from over, and cautioned borrowers against expecting more rate cuts in 2025.
'We cannot declare victory on inflation just yet,' she told reporters in Sydney.
She had a warning for homeowners who had struggled to cope with the most aggressive rate hikes since the late 1980s, that had been unleashed in 2022 and 2023.
'I understand that you are hurting, and I understand that mortgage rates have increased a lot … but we need to get inflation down because that's the other thing that is really hurting you,' Ms Bullock said.
Australian borrowers have had their first official interest rate cut in more than four years. But Reserve Bank Governor Michele Bullock (pictured) declared the fight against inflation was far from over, and cautioned borrowers against expecting more rate cuts in 2025
The Reserve Bank has eased the cash rate by 25 basis points to 4.1 per cent, noting inflation had eased with an election due soon (pictured is Prime Minister Anthony Albanese)
'If we don't get inflation down, then interest rates won't come down, and you'll be stuck with inflation and high interest rates.
'So, we have to be patient. I understand it hurts. But it's really important that we get inflation down.'
Financial markets are expecting another three rate cuts in 2025 and 2026 - a prediction Ms Bullock believed was premature.
'Our feeling at the moment is that is far too confident that that's as many rate cuts as we'll be having,' she said.
'I can't say "one and done" - what I can say is that we've done one, we've moved a bit of restrictiveness, we are still restrictive, and we are waiting for more evidence that we're getting inflation sustainably back in the band before we are willing to move again.'
Westpac announced a cut to its variable rates a minute after the RBA announcement, making it the first of the Big Four banks to move - with ANZ, Commonwealth and NAB all following soon after to announce their relief would be coming on February 28.
As the banks pass on the RBA cut, a borrower with an average $600,000 mortgage will see their monthly repayments fall by $92 a month or $1,104 a year as a result of the cut.
The average, owner-occupier variable rate offered by banks will fall to 6.07 per cent.
Treasurer Jim Chalmers declared the cut was 'very welcome news for millions of Australians' with an election due by May.
'This is the rate relief Australians need and deserve,' he said.
'It won't solve every problem in our economy or in household budgets but it will help.'
Westpac has cut its variable rate by 25 basis points to 6.19 per cent, effective March 4, as the first major bank to move.
ANZ followed suit 23 minutes later, with its quarter of a percentage point cut, giving it the lowest variable rate of 5.84 per cent among the big banks.
The Commonwealth Bank's 25 basis point easing will see its lowest variable rate fall to 5.9 per cent, while NAB's 25 basis point cut will see its lowest variable rate fall to 6.19 per cent.
The major banks, however, were already offering three-year variable rates starting with a 'five', as the Commonwealth Bank and Westpac expect four cuts in 2025.
This marked the first relief for home borrowers since November 2020
NAB sees four cuts this year followed by one more in early 2026.
The RBA move on Tuesday occurred despite underlying inflation, at 3.2 per cent, still being above the Reserve Bank's 2 to 3 per cent target.
Headline inflation, however, is lower at 2.4 per cent, based on the federal government's one-off $300 electricity rebates.
Ms Bullock noted the drop in the consumer price index could be temporary.
'It is not good enough for inflation to be back in the target range temporarily - the board needs to be confident it's returning to the target range sustainably,' she said.
The Reserve Bank said it was still mindful of cutting rates too quickly, with updated forecasts released on Tuesday having inflation climbing up to 3.7 per cent by December 2025 after the electricity rebates end.
'If monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range,' it said.
'In removing a little of the policy restrictiveness in its decision today, the board acknowledges that progress has been made but is cautious about the outlook.'
Australia's latest 4.1 per cent cash rate is the lowest since early November 2023, but it is still higher than Canada's equivalent policy rate of 3 per cent, following six cuts there since June.
It is now lower than New Zealand's 4.25 per cent level, following three cuts across the Tasman since August.
Gareth Aird, the Commonwealth Bank's head of Australian economics, said an April 1 cut was a possibility when the RBA next met again.
'A follow up 25 basis point rate reduction in April cannot be ruled out,' he said.
'On that score, we believe the labour market data is key before the April board meeting.'
