Australia Cuts Interest Rates for First Time Since Pandemic, Signals Cautious Stance
Sydney, Australia - Australia's central bank has lowered interest rates for the first time since the height of the 2020 pandemic, acknowledging progress in curbing inflation but expressing caution about further monetary easing.
The initial rate reduction offers relief to borrowers and bolsters the position of Prime Minister Anthony Albanese, who faces a challenging election before May 17. Speculation suggests he may capitalize on the move by calling an early election.
Markets had anticipated a quarter-point cut after core inflation decelerated to 3.2% in the fourth quarter. However, the cautious tone adopted by the Reserve Bank of Australia (RBA) sent the Australian dollar marginally higher to $0.6366. Swaps indicate a mere 20% probability of an additional cut in April.
During its February meeting, the RBA reduced the cash rate by a quarter-point to 4.1%, marking the first reduction since November 2020, when pandemic-induced measures dropped rates to a record low of 0.1%.
"While today's decision acknowledges the positive progress on inflation, the Board remains prudent regarding further monetary easing," the RBA stated.
Having alluded to the possibility of action in December, the board reiterated its commitment to restoring inflation to its target and taking necessary steps to achieve this outcome.
Australia's rate cut follows a pause in the Federal Reserve's easing cycle. Across the Tasman Sea, New Zealand is anticipated to implement a 50-basis point reduction on Wednesday.
Inflation, which surged later in Australia than in other nations, reached 2.4% in the final quarter, bolstered by government rebates on electricity bills. The closely monitored trimmed mean measure also eased to 3.2% from 3.6%. The central bank seeks to maintain inflation within a 2-3% range, targeting 2.5%.