RBA cuts interest rate: first rate reduction since 2020

RATE CUTS February 2025

The Reserve Bank of Australia (RBA) has announced a 25 basis point cut to the cash rate, bringing it down to 4.10% from 4.35%. This marks the first interest rate reduction since November 2020, ending a streak of nine consecutive announcements where the cash rate remained unchanged.

Key points:

Cash rate cut: The RBA lowered the cash rate by 25 basis points to 4.10%.

Inflation trends: The consumer price index (CPI) rose by 0.2% in the December quarter, with annual inflation at 2.4%.

Underlying inflation: Trimmed mean annual inflation stood at 3.2%, slightly above the RBA's 2-3% target range.  

Reasons behind the rates cut

The RBA Board cited several factors influencing their decision:

Moderating inflation: Underlying inflation is easing more quickly than expected.
 
Economic growth: Output growth has been weak, with private domestic demand recovering slower than anticipated.
 
Labour market: Recent data suggests the job market may be tighter than previously thought.
 

Market response and future outlook

Major banks: Westpac and Commonwealth Bank of Australia (CBA) have already confirmed they will reduce variable rate borrower rates by 25 basis points.

Future predictions: All four major banks forecast additional rate cuts in 2025, with predictions ranging from one to multiple reductions.

Impact on borrowers and property market

Borrower relief: The rate cut provides much-needed stability for borrowers managing higher repayments.

Market relief: January loan applications increased by nearly $2 billion compared to the previous year.
 
Property market: Lower rates are expected to boost buyer confidence and borrowing capacities, potentially reversing recent price falls.

Next step for consumers

Review currents loans: With increased competition in the home loan market, borrowers should explore better rate options1.
 
Pre-approval: Potential buyers should seek pre-approval to secure their position in a more competitive property market1.
 
Stay informed: The RBA has seven more meetings scheduled for 2025, providing opportunities for further rate adjustments.

For the latest updates on interest rates and their impact on the Australian economy, stay tuned to financial news sources and RBA announcements.

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