Australian central bank cuts rates for first time since November 2020

The rate cut will be some relief for Australian borrowers. Photo / 123rf

Australia’s central bank cut its key interest rate on Tuesday for the first time in more than four years, but warned global turmoil could derail further easing.

The Reserve Bank of Australia (RBA) cut the cash rate by 0.25 percentage points to 4.10%, the first time it has been lowered since November 2020.

It said inflation had “fallen substantially since the peak in 2022”, but that it “remains cautious” about the prospect of further reductions in the future.

Notably, the bank pointed to the prospect of “significant” uncertainty abroad.

“Geopolitical and policy uncertainties are pronounced and may themselves bear down on activity in many countries if households and firms delay expenditures pending greater clarity on the outlook,” it said in a statement.

Central banks and stock markets the world over are nervously eyeing the impact of US President Donald Trump’s sweeping trade-tariff plan.

The US Federal Reserve last week warned of a “highly uncertain” economic outlook unsettled by “trade, immigration and regulatory policies”.

Australia’s rate cut will be welcome news for Prime Minister Anthony Albanese, who must face voters in a general election that is due by May 17 at the latest.

Albanese’s left-leaning Labor Government has struggled to convince the public it is capable of tackling stubborn cost-of-living pressures.

Like most major central banks, Australia swiftly hiked rates in an effort to tame soaring inflation stoked by Covid-19 and the outbreak of war in Ukraine.

Inflation has dropped from a peak of 7.8% in December 2022 and now sits at 2.4%, according to the RBA.

Although inflation has eased, many Australian households remain burdened by the high cost of food, fuel and housing.