The Reserve Bank of Australia (RBA) has acknowledged lingering uncertainty around the nation’s cost of living while hinting at its next steps regarding interest rates.
The Reserve Bank has made it clear that further rate cuts are not guaranteed, as revealed in its latest monetary policy minutes. The central bank remains focused on bringing inflation down, even as the economy shows signs of slowing.
In a move that brought relief to mortgage holders, the RBA cut rates for the first time since the Covid pandemic in February, reducing the official cash rate from 4.35% to 4.10%. Major banks quickly followed suit, slashing home loan rates by 0.25%.
Governor Michele Bullock and the RBA board made history by dropping the cash rate for the first time in four years.
However, those hoping for consecutive rate cuts may need to wait. The RBA emphasized that its decision to cut rates in February was based on progress in reducing inflation but did not commit to further easing.
“The board acknowledged the progress made in lowering inflation but stressed that future decisions will depend on incoming data and the evolving assessment of risks,” the minutes stated. “Returning inflation to target remains the highest priority, and the RBA will do what is necessary to achieve that outcome.”
Inflation is falling faster than expected
Despite the rate cut, the trimmed mean inflation rate—a key measure of cost-of-living pressures—remains above the RBA’s target range. However, the central bank noted that inflation is falling faster than expected, prompting the decision to ease rates sooner rather than later.
“Members noted that inflation had declined more than anticipated, while wage growth had slowed,” the RBA said. “Output growth remained subdued, reflecting weak private demand amid restrictive financial conditions. Still, underlying inflation remains above the midpoint of the 2–3% target range.”
While the RBA board unanimously agreed to cut rates in February, the minutes suggest that back-to-back rate cuts are unlikely. The central bank’s next meeting is scheduled for March 31-April 1, but analysts predict the RBA will wait until the May 19-20 meeting before considering another 25-basis-point cut.
Mortgage holders may have to wait until May for the next rate cut.
Before the release of the RBA minutes, BetaShare chief economist David Bassense predicted that the next rate cut would likely follow the release of less volatile quarterly data on April 30.
“The official cash rate remains at restrictive levels, and further cuts would only ease the level of policy restrictiveness—essentially taking the foot off the brake rather than pressing the accelerator,” he said. “My base case remains that the RBA will cut rates at least twice more this year, in May and August.”
