The Reserve Bank of Australia (RBA) has lowered its cash rate for the first time since November 2020.
The RBA cut interest rates from 4.35% to 4.1%.
This comes after it started lifting interest rates in 2022 to combat high inflation (rising prices).
Interest rates
The cash rate is what the RBA charges banks for short-term loans.
We usually refer to changes in the cash rate as the RBA changing interest rates, because the cash rate affects interest rates across the economy, including home loans. The higher the interest rate, the more expensive it is to borrow money.
The cash rate has been at 4.35% since November 2023, which is its highest level in more than a decade.
Today
The RBA board opted to cut interest rates from 4.35% to 4.1%. This is the first time interest rates have seen a decrease since November 2020.
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The RBA partly bases its decisions on underlying inflation, which measures the rate of price growth once you remove extremes on either side (such as a sudden fall in energy prices).
The RBA’s target range for underlying inflation is 2-3%. The latest data from the Australian Bureau of Statistics shows underlying inflation is at 3.2%.
In a statement today, the RBA Board said: “Inflation has fallen substantially since the peak in 2022.”
It added that the RBA is now confident “inflation is sustainably towards the midpoint of the 2–3 per cent target range.”
The next interest rate decision will be handed down on 1 April. The Board added in its statement that it is “cautious on prospects for further policy easing”.
Election?
Speculation has been building that Albanese will call the date of the election off the back of an interest rate cut.
The Federal Government needs to hold an election by 17 May. It is up to the Prime Minister the exact timing of the election.
The PM is yet to confirm when it will be held.
