February 18, 2025

RBA Announces Rate Cuts Amid Cost of Living Crunch

In a highly anticipated move, the Reserve Bank of Australia (RBA) has officially cut interest rates, marking the beginning of a new economic chapter for the nation. The decision, announced today, saw the cash rate reduced by 0.25 percentage points to 4.10%, the first rate cut since November 2020.

Why the RBA made the move

The RBA’s decision to ease monetary policy comes amid signs that inflation is easing faster than expected, with underlying inflation falling to 3.2%, closer to the target range of 2-3%. Economic growth has been slower than predicted, with subdued household spending and high labour costs despite easing wage pressures. This cautious rate cut aims to support growth while managing risks, ensuring inflation remains under control amidst global and domestic uncertainties.

Immediate Impacts

Investors Take Note

The ASX responded positively to the announcement, with bank stocks and real estate trusts experiencing gains.

Borrowing Just Got Cheaper

For businesses, lower borrowing costs may spur investment and expansion, potentially boosting employment.

Winners and Losers

While homeowners and investors celebrate the decision, savers face disappointment as interest rates on deposits are likely to fall. For retirees relying on fixed-income investments, the challenge of securing decent returns will remain.

What’s Next?

Economists are divided on whether this cut signals the start of an easing cycle. Some predict further cuts if economic conditions fail to improve, while others believe the RBA will adopt a wait-and-see approach.   As Australia enters this new phase of monetary policy, all eyes will be on how households, businesses, and markets respond. Whether this rate cut marks the beginning of a broader easing cycle or remains a one-off adjustment will depend on economic indicators in the coming months.

The above is not legal or financial advice, and is general information only. 

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