Rates cut by 0.25%...

Today the RBA cut the cash rate for first time since 2020, marking the start of an easing cycle...

The Reserve Bank of Australia (RBA) has announced a highly anticipated cash rate cut, lowering the rate by 25 basis points from 4.35% to 4.10%. This marks the first rate reduction since November 2020 and the beginning of the first easing cycle in four years, breaking a streak of nine consecutive meetings where the central bank held rates steady.

The decision was widely expected by economists and the nation’s four major banks as the RBA continues its efforts to bring inflation within its target range of 2-3%.

Inflation Trends Support Rate Cut...

Recent inflation data provided further justification for the move. The consumer price index (CPI) rose by 0.2% in the December quarter, bringing annual inflation down to 2.4%, a decline from 2.8% in the previous quarter. This marks the second consecutive quarter that CPI has remained within the RBA’s target range.

While underlying inflation remains slightly above target, the RBA board acknowledged that inflationary pressures are easing faster than expected... “In the December quarter, underlying inflation was 3.2%, suggesting that inflationary pressures are easing a little more quickly than anticipated.”

Future Policy Outlook...

While the rate cut signals the beginning of an easing cycle, the RBA remains cautious about further reductions. The board cited ongoing risks, including sluggish private domestic demand and uncertainty surrounding the sustainability of a household spending recovery expected in late 2024.

“Growth in output has been weak, private domestic demand is recovering more slowly than earlier expected, and there is uncertainty around the extent to which the recovery in household spending in late 2024 will persist,” the board warned.

Despite these concerns, the rate cut represents a significant shift in monetary policy, with markets closely watching for signals on the RBA’s next move.

In reaction to today's announcement and general tone, the sharemarket has dipped about 0.5% while the Australian dollar strengthened, suggesting that financial markets are now less hopeful of further significant rate cuts this year. This may also trigger a slightly earlier than expected Federal Election, as the Government will want to campaign on this good news sooner rather than later.

More to come.
Rick.