SYDNEY (Reuters) – Australia’s central bank cut interest rates on Tuesday for the first time since the depths of the 2020 pandemic, saying progress had been made on inflation though it was still cautious about prospects of further policy easing.
The first rate cut will provide some relief to borrowers and comes as good news for Prime Minister Anthony Albanese, who is facing a tough election to be held no later than May 17. Speculation is swirling that he may use the opportunity to call an early election.
Markets had wagered heavily on a quarter-point cut after core inflation surprised on the downside in the fourth quarter at 3.2%. But the cautious stance sent the Australian dollar 0.2% higher to $0.6366.
Swaps imply just a 20% probability for a follow-up cut in April.
Wrapping up its February policy meeting, the Reserve Bank of Australia (RBA) cut the cash rate by a quarter-point to 4.1%, the first reduction since November 2020 when the pandemic crisis saw rates slashed to an all-time low of 0.1%.
“While today’s policy decision recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing,” the board said in a statement.
Having already opened the door to a move in December, the board said it remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.
The RBA has lagged its peers in the global easing cycle and Australia’s cut comes as the Federal Reserve appears to be pausing its policy loosening.
Across the Tasman Sea, New Zealand is poised to go with another 50-basis point cut on Wednesday.
Inflation, which took off in Australia later than elsewhere, ran at 2.4% in the last quarter, helped by government rebates on electricity bills. The closely watched trimmed mean measure also slowed to 3.2%, from 3.6% previously.
The central bank aims to keep inflation in a 2-3% band over time with a focus on the midpoint of 2.5%.
(Reporting by Stella Qiu; Editing by Sam Holmes)
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