MELBOURNE, Australia (AP) — Australia’s central bank on Tuesday reduced its benchmark interest rate for the first time since October 2020 as the nation’s inflation cools.
The Reserve Bank of Australia reduced the cash rate by a quarter percentage point from 4.35% to 4.1%. at its first board meeting for the year.
The cut was widely anticipated after inflation rose only 0.2% in the December quarter and 2.4% for calendar 2024. Annual inflation peaked at 7.8% two years earlier.
The bank manipulates interest rates to keep inflation within a target band of between 2% and 3%.
“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the board said in a statement.
Unemployment in Australia remained at near-record low levels of 4% in December, up from 3.9% in November.
The rate shift is a welcome development for Prime Minister Anthony Albanese’s center-left Labor Party government which will seek reelection at elections due by May 17.
Treasurer Jim Chalmers welcomed the independent board's decision.
“This is the rate relief Australians need and deserve,” Chalmers said in a statement. “It won't solve every problem in our economy or in household budgets but it will help."
Twelve of the last 13 rate increases have taken place since the government was elected for its first three-year term on May 21, 2022.
The cycle began in the final days of the previous government’s tenure when the rate rose from a record low 0.1% to 0.35% on May 4, 2022.
The high cost of living and a shortage of housing around Australia are expected to be major issues in the upcoming election campaign.
The central bank had held the cash rate at 4.35% since November 2023. That was the highest rate since it fell from 4.5% to 4.25% in December 2011.
Rod Mcguirk, The Associated Press
