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Source: Yahoo Finance Australia
The Reserve Bank of Australia (RBA) has reduced interest rates for the first time since November 2020, providing relief for countless mortgage holders under financial strain. The central bank decreased the cash rate by 0.25 percent, bringing it down to 4.10 percent.
This reduction was anticipated by economists and the market, following inflation numbers that came in below the RBA’s expectations. The headline inflation rate decreased to 2.4 percent in December, and the RBA’s preferred underlying inflation rate eased to 3.2 percent.
The RBA board indicated that data shows inflationary pressures are “easing faster than anticipated,” and it is confident that inflation is “progressing sustainably” towards the midpoint of its targeted range of 2 to 3 percent.
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However, the RBA issued a significant warning, stating that “upside risks” persist, including unexpectedly robust labor market data, which may prevent a series of rate cuts that mortgage holders are anticipating.
“While today’s policy decision acknowledges the positive developments in inflation, the Board remains cautious about the prospects for further policy easing,” said the board.
With today’s cut, an Australian with an average mortgage of $641,416 will save $103 per month on their repayments, equating to $1,236 annually, assuming their bank fully implements the 0.25 percent rate cut.
Melbourne mortgage holder James Smolski shared with Yahoo Finance that the cut is a welcome adjustment for his financial planning. The 27-year-old electrician bought his first home with his fiancée, Jess, in 2022 for just below $600,000.
Since their purchase, their variable interest rate has surged from around 3 to 7 percent, forcing them to be more stringent with their finances and abandon luxuries like dining out.
“This will definitely assist us. We haven’t yet made a decision about whether to raise our payments to maintain the same level or to save it since we are engaged and planning for a wedding,” Smolski commented.
Westpac, NAB, and Commonwealth Bank were among the first to announce interest rate cuts following the RBA’s decision.
Canstar’s data insights director Sally Tindall remarked to Yahoo Finance that she anticipates other banks will fully pass on the interest rate reduction to borrowers and predicted a “game of bull rush.”
