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The Reserve Bank of Australia (RBA) has slashed interest rates at its meeting Tuesday.
The central bank made its latest monetary policy decision after a two-day meeting, which began on Monday, to lower the official cash rate (OCR) by 25 basis points to 4.10%, and the interest rate paid on the exchange settlement balance to 4%, according to a statement released by the RBA Tuesday afternoon.
"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 bank said in a statement, regarding the decision. "In the December quarter underlying inflation was 3.2%, which suggests inflationary pressures are easing a little more quickly than expected. There has also been continued subdued growth in private demand and wage pressures have eased. These factors give the board more confidence that inflation is moving sustainably towards the midpoint of the 2% to 3% target range.
"However, upside risks remain," the RBA statement continued. "Some recent labour market data have been unexpectedly strong, suggesting that the labour market may be somewhat tighter than previously thought. The central forecast for underlying inflation, which is based on the cash rate path implied by financial markets, has been revised up a little over 2026. So, while today’s policy decision recognises the welcome progress on inflation, the board remains cautious on prospects for further policy easing."
Australia's elevated interest rates have been on hold at 4.35% since November 2023.
The lower rates are a welcome relief for homeowners and investors across the country, and will likely activate a flood of activity in the market. Many have been waiting on the sidelines to invest or upgrade existing properties while rates remained high, while some first-time homeowners weren't able to enter the market at all.
"Rate cuts impact affordability; people's borrowing capacities increase. And it impacts peoples' perception of future affordability," Aaron Bell, Sydney-based mortgage broker at Home Loan Village, told Australian Broker. "It adds confidence to the market."
Julian Fayad, founder and chief executive officer of asset-based brokerage and fintech firm LoanOptions.AI, agreed that the lower OCR will likely lead to what he describes as a "property frenzy."
But it won't just be borrowers looking to purchase or refinance their homes, he said.
"We're also going to see a lot of people move to upgrade their cars and stuff like that," explained Fayad, whose firm offers a variety of personal loans. "There's a lot of people who are just sitting a little bit longer, waiting to see if the economy is going to turn."
Last December, the RBA's decision to leave the OCR unchanged was a result of inflationary pressures. The central bank said it would not cut rates until inflation was within its target range of 2% and 3%. January's Consumer Price Index (CPI) set off a wave of optimism in the market after it was revealed that inflation had risen to 2.4% for the year, but down from 2.8% at the previous quarterly reading. The "trimmed mean" fell to 3.2%, down from 3.6% in the September third quarter.
The results triggered the last of Australia's Big Four Banks — Westpac and the National Bank of Australia — to move its forecast for the next rate cuts forward, from May 2025 to February. Commonwealth and ANZ had previously anticipated a February rate cut.
Today's rate cuts have led some market participants to remain hopeful of further rate reductions later this year.
"In a sign that borrowers are expecting rates to fall further, 96% of loans submitted by our brokers in January 2025 were for variable rate home loan products," said Anthony Waldron, chief executive officer of brokerage giant Mortgage Choice. “With this rate cut, I think we can expect competition to heat up in the home loan market."
The RBA's next meeting is scheduled for Monday, March 31 to Tuesday, April 1.
For now, Chris Hall, founder, managing director and finance broker at Sydney-based Blue Crane Capital, said: "It'll be interesting to see what the greater impact of those rates dropping will have. I don't know if it's going to have a significant uplift in value as much as what people are saying. I think it'll have more of an impact on sentiment."
