Australia’s cash rate target has remained unchanged at 4.35% since November 2023, marking over a year without adjustment. With the Reserve Bank of Australia (RBA) set to meet next week, economists from major banks anticipate a 0.25 percentage-point cut, which could bring relief to mortgage holders.
For over a year, the RBA has held rates steady in an effort to curb inflation, keeping economic growth in check without triggering a recession. However, with inflation showing signs of easing, there is growing speculation that the central bank could now shift its policy. The decision will be announced on Tuesday at 2:30 PM AEDT, making it a critical moment for homeowners, businesses, and financial markets.
Why the RBA Has Kept Rates High for So Long
The RBA’s primary objective is to maintain inflation within a target range of 2-3% over the medium term, ensuring stability in the economy. In response to rapidly rising inflation in previous years, the central bank raised the cash rate from a historic low of 0.1% to 4.35% between May 2022 and November 2023, according to official records.
By keeping rates elevated, the RBA has successfully slowed consumer spending and economic activity, helping to ease inflationary pressures without significantly increasing unemployment. The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) shows headline inflation at 2.4%, technically within the RBA’s target range.
However, the RBA has been focusing on underlying inflation, particularly the trimmed mean, which excludes volatile price fluctuations. This measure stood at 3.2% in the December quarter, still above the central bank’s preferred range. The RBA’s reluctance to cut rates earlier was due to concerns that inflation was not yet under sustainable control.
Could the Reserve Bank of Australia Cut Rates Now?
Despite inflation remaining slightly above target, monetary policy operates with a lag, meaning the impact of past rate hikes is still filtering through the economy. According to economic analysts, this is why the RBA may now consider cutting rates to avoid unnecessary economic slowdown.
Australia’s big four banks—Commonwealth Bank, Westpac, ANZ, and NAB—are forecasting a 0.25 percentage-point reduction, which would lower the cash rate to 4.1%. While a rate cut does not automatically translate to lower mortgage repayments, banks may choose to pass on the reduction to borrowers.
The RBA will hold eight meetings in 2025, with the next scheduled for March 31 and April 1, according to its official calendar. If no decision is made next week, the next opportunity for a rate cut will be in April.
