Australia’s central bank reduces interest rates for first time in four years

SYDNEY: Australia’s central bank has reduced its interest rates for the first time in four years as inflationary pressures ease, though it cautioned against aggressive cuts.

The Reserve Bank of Australia (RBA) lowered its cash rate by 0.25 percentage points to 4.1% on Tuesday, a move widely anticipated by markets. However, the bank warned that rapidly reducing borrowing costs could lead to stalled disinflation, citing significant global geopolitical and policy uncertainties.

Governor Michele Bullock, speaking at a post-decision briefing, emphasized a data-driven approach and cautioned against expectations of consecutive rate cuts. Following her remarks, stocks fell by 0.7% while three-year government bond yields climbed.

“I want to be very clear that today’s decision does not imply that further rate cuts along the lines suggested by the markets are coming,” Bullock stated. “The board needs more data and evidence that inflation is continuing to decline before making decisions about the future path of interest rates.”

The yield on three-year notes rose six basis points during Bullock’s press conference as traders scaled back expectations for additional rate cuts. They now fully price in just one rate cut and less than an 80% chance of a second cut this year, down from expectations of at least two more cuts before the decision, according to Bloomberg News data.

The decision could bolster Prime Minister Anthony Albanese as he seeks re-election in an upcoming vote by May 17. His Labor party currently trails the opposition Liberal-National coalition in polls, with cost-of-living and housing concerns among the electorate’s top issues.

Treasurer Jim Chalmers, at a Canberra press conference, called the rate cut “the soft landing that we have been planning for” and said it offers “relief that Australians need and deserve.” He echoed the RBA’s concerns about economic uncertainties and refrained from declaring victory over inflation.

The Australian dollar fluctuated near a two-month high, rallying the most since December against New Zealand’s currency on Tuesday.