The Reserve Bank of Australia has reduced the cash rate by 25 basis points, bringing it down to 3.85 %. This is the second rate reduction this year, and it certainly helps provide relief to mortgage holders dealing with high repayments in conjunction with escalating living expenses.
"As inflation continues to ease, the strength in the job market provides us the confidence that at least in the near term, we are not going off the tracks," said RBA Governor Michele Bullock.
That direction they are moving towards shows confidence, hence the reason for the slight ease that was reported by Ms. Bullock.
While she said she does not expect a recession to hit the country, Bullock underscored that global factors still remain highly uncertain: "It's been a complete rollercoaster," she said while referring to recent international developments.
Inflation Cools Down But Remains Distant From Relaxation
Based on recent statistics, the inflation rate, for the first time in three years, has dipped below 3
%. For the RBA, it is an important benchmark, as it has been on the runway since 2022 to keep the rate of price growth in control. With price reductions, the board prefers to make rate cuts while sticking to steady wage growth.
Nonetheless, the economic outlook remains mixed. The RBA has lowered its forecast for private sector employment and wage growth. These issues led to some board members contemplating whether an additional rate cut was warranted. Although there was discussion on a half-point reduction, most members preferred a more gradual approach.
Fears of Global Trade Loom Large
What makes this cut unique in contrast to previous ones is the growing concern of global matters influencing the RBA's decisions. Foremost among these worries are the trade tariffs imposed by U.S. President Donald Trump. These tariffs are adding to global business and consumer uncertainty, which may contribute to a broader slowdown.
The RBA has even added consideration of a possible full-blown trade war scenario. In such a case, internal modelling suggests Australia could suffer a loss of approximately 300,000 jobs and economic growth could be slashed by 50% in two years. The bank has also warned that after the tariffs, companies may respond to such increases by raising prices in markets such as Australia, driving inflation.
Worries About International Trade
The impact of global considerations on the RBA's decision-making is what makes this rate cut unique compared to others. Trade tariffs enforced by U.S. President Donald Trump are one such issue. These tariffs pose a threat to economic certainty for businesses and consumers on a global scale, which in turn has the potential to slow down economic growth considerably.
Even the RBA has deemed it reasonable to assume that a full-scale trade war is possible. In such a situation, the bank's internal forecasts suggest Australia would lose approximately 300,000 jobs and experience a significant reduction in economic growth over the following two years
The recent interest rate cut means some immediate relief for Australians with home loans. Canstar's recent analysis estimates that borrowers with an outstanding mortgage balance of approximately $750,000 could save around $114 a month. All major banks confirmed they are willing to pass on the rate cuts to borrowers in the coming weeks.
While rate cuts are suggested around the corner, expenses may remain heightened. OM Financials offers top-notch strategies and the right advice to better your financial situation. Call 04788 769 67 or schedule a meeting today to learn about the future investment.
