Australia Cuts Key Interest Rate For First Time Since 2020

(RTTNews) - The Reserve Bank of Australia lowered its benchmark rate for the first time since 2020 as upside risks to inflation eased but policymakers remained cautious about further easing.

The policy board of the RBA governed by Michele Bullock decided to reduce the cash rate target by 25 basis points to 4.10 percent. The decision came in line with expectations.

This was the first reduction since November 2020 and follows 13 rate hikes since May 2022.

Today, the interest rate paid on Exchange Settlement balances was also cut to 4 percent.

The board assessed that the monetary policy has been restrictive and will remain so after the reduction in the cash rate, the bank said.

"Some of the upside risks to inflation appear to have eased and there are signs that disinflation might be occurring a little more quickly than earlier expected," the bank added.

However, policymakers observed that if the policy is eased too much too soon, then disinflation could stall and inflation would settle above the midpoint of the target range.

"In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook," RBA said.

The bank forecast underlying inflation to return to the 2-3 percent range a little sooner than earlier estimated. The bank noted that inflation is moving sustainably towards the mid-point of the target range.

The board cautioned that geopolitical and policy uncertainties are pronounced and may themselves bear down on activity in many countries.

Capital Economics' economist Abhijit Surya said the ongoing easing cycle will prove short-lived. The economist expects only two more cuts in the current easing cycle.