Reserve Bank boss Michele Bullock has flagged further rate cuts after Tuesday’s delayed decision to cut the official cash rate.
The central bank opted not to shock markets for a second time in two months on Tuesday.
Its decision to cut the cash rate by 25 basis points to 3.6 per cent – the third reduction in six months – will save borrowers with a $600,000 mortgage almost $90 a month in repayments and a cumulative $272 per month since cuts began in February.
The move brings the cash rate to its lowest level since May 2023, with the average variable mortgage rate expected to fall to 5.5 per cent.
In her post-meeting media briefing, Bullock said the board – which voted unanimously for a cut on Tuesday – continued to discuss how to sustain demand and potential supply as inflationary pressures eased.
“The forecasts imply that the cash rate might need to be a bit lower than it is today to keep inflation low and stable, and employment growing, but there is still a lot of uncertainty,” she said.
She said there was no discussion on Tuesday of a larger cut.
“I think last time I spoke about it was a matter of timing, not necessarily direction,” Bullock said, referencing July’s surprise move to hold rates.
“All board members were fully behind 25 basis points.”
She said the board would take each decision “meeting by meeting”, as it considered where the official cash rate should be.
Treasurer Jim Chalmers, meanwhile, hailed Tuesday’s widely expected cut.
“This welcome decision wouldn’t be possible without the progress that Australians have made together on inflation. Getting inflation down from those very high peaks in the year that we came to office, down to well within the Reserve Bank’s target range, has given the independent Reserve Bank the confidence to cut interest rates three times this year,” Chalmers said shortly after Tuesday’s decision was released.
“For the first time in almost two decades, we’ve seen three interest rate cuts in a calendar year, with the unemployment rate still lower than 5 per cent.
“We’re seeing interest rates come down three times in six months at the same time as we have maintained historically low unemployment … These rate cuts won’t solve every problem that we have in our economy. But they will certainly help.”
He said the latest cut to the official cash rate put Australia in good stead to deal with global economic uncertainty and big economic challenges.
“But primarily today’s decision is welcome because it puts more money into the pockets of millions of Australians who are still under pressure,” he said.
For many borrowers, however, the financial boost is behind schedule.
Most economists had expected the RBA to deliver further rate relief in its July meeting.
Instead, in a shock six-three decision, the board kept rates on hold, citing a desire to wait for more inflation data to ensure price growth was coming down sustainably to target.
A benign consumer price index in late July and weaker jobs figures gave the bank the green light to deliver the cut that most considered a matter of when, not if. Tuesday’s decision was unanimous among the RBA board.
With money markets predicting more cuts in coming months, rising buyer confidence and borrowing capacity would support housing demand and price growth, REA senior economist Eleanor Creagh said.
According to Domain, the cut will lift borrowing power for households earning $50,000 a year by $4000 annually. Double-income households on $400,000 will be able to lift their loan limit by an extra $49,000.
“With more money chasing too few homes, prices are set to rise again,” Domain chief economist Nicola Powell said.
Within an hour of the RBA announcement on Tuesday, the country’s biggest mortgage lender, the Commonwealth Bank, said it would pass on the latest cut in full.
“With now three rate cuts this year, Australian borrowers are getting some breathing room back in their budgets. It will be very welcome for those with a home loan,” CBA retail group executive Angus Sullivan said.
“We can see people are responding to lower interest rates in different ways – some are covering everyday costs a little more comfortably, others are getting ahead on their home loans.”
Another of the big four lenders, Westpac, followed with a similar announcement shortly after. They were followed by publication time by: ANZ, Macquarie Bank, unloan (backed by CBA), Athena. and AMP.
The RBA board next meets on September 29-30.
-with AAP
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