Mortgage holders get key details around next rate cut

The Reserve Bank concedes there is still uncertainty around Australia’s cost of living and has hinted what its next move on rates will be.

The Reserve Bank wants to see Australia’s inflation rate fall further and is “not committing” to further rate cuts, its minutes of monetary policy show.

In welcome news for mortgage holders, the RBA cut rates for the first time since the Covid pandemic in February, dropping the official cash rate from 4.35 per cent to 4.10 per cent.

The big banks quickly followed suit and announced they would all cut their home loan rates by 0.25 per cent.

Governor Michele Bullock and the RBA board dropped the official cash rate for the first time in four years. Picture: NewsWire / John Appleyard

But Aussies looking for back-to-back rate cuts might have to wait, as the Reserve Bank weighs up fighting inflation against a slowing economy.

“They emphasised that the decision at this meeting acknowledged the progress that had been made in reducing inflation while not committing the board to ease policy further,” the minutes read.

“Members also agreed that future decisions would be guided by the incoming data and evolving assessment of risks. Returning inflation to target remains the board’s highest priority and it will do what is necessary to achieve that outcome.”

The minutes show the central bank cut rates despite the trimmed mean inflation rate, which the RBA uses to track the country’s cost of living, still above the bank’s target range.

However, the RBA said inflation was falling faster than forecast and it did not want to be too slow in cutting interest rates.

“Turning to considerations for the monetary policy decision, members noted that inflation had declined, and by more than had been expected, while wages growth had slowed,” the RBA said in its minutes.

“Output growth had remained subdued, reflecting weak growth in private demand over the prior year amid restrictive financial conditions. At the same time, underlying inflation remained above the midpoint of the 2–3 per cent range.”

While the RBA board voted unanimously to cut interest rates for the first time in four years, the minutes show the central bank is not thinking about back-to-back rate cuts.

Mortgage holders are unlikely to see back-to-back rate cuts. Picture: NewsWire / John Appleyard

The RBA next meets on March 31-April 1 but is predicted to wait until the May 19-20 meeting before cutting interest rates by a further 25 basis points.

Prior to the RBA minutes being made public, BetaShare chief economist David Bassense predicted mortgage holders would next get a rate cut after the less volatile quarterly data, due next on April 30, was released.

“After all, the official cash rate is still at restrictive levels and further interest rate cuts at this stage still only involves easing back on the level of policy restrictiveness – taking the foot of the brake rather than pushing down on the accelerator,” he said.

“Accordingly, my base case remains that the RBA will cut rates at least twice more this year, in both May and August.”