Australia's Central Bank Cuts Interest Rate Amid Cooling Inflation
MELBOURNE, Australia - Australia's central bank, the Reserve Bank of Australia (RBA), reduced its benchmark cash rate by 25 basis points to 4.1% at its first board meeting of 2023. This marks the first rate cut since October 2020.
The move was widely anticipated following a moderation in inflation, which rose by a modest 0.2% in the December quarter and 2.4% for calendar year 2022. Inflation peaked at 7.8% in June 2022. The RBA aims to keep inflation within a target band of 2% to 3% through interest rate adjustments.
"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 RBA said in a statement.
Despite the rate cut, unemployment remains low at 4%, up slightly from 3.9% in November. The interest rate decision provides some relief for Prime Minister Anthony Albanese's Labor Party government, which faces an election later this year.
The rate cut cycle began in May 2022 when the cash rate was raised from a record low of 0.1%. Since then, there have been 12 rate increases, with the November 2023 increase to 4.35% being the highest since December 2011.
The cost of living and housing affordability are expected to be major issues in the upcoming election campaign.