Australia cuts interest rates as election approaches

Raunaq Mohammad

2nd March 2025

Written by Raunaq Mohammad

Australia’s central bank on Tuesday cut interest rates for the first time in more than four years as inflation pressures began to show signs of easing more quickly than expected.

The Reserve Bank of Australia (RBA) cut its cash rate by 0.25 percentage points to 4.1% in what governor Michele Bullock said was a carefully balanced decision given the country’s tight labour market and global uncertainty caused by US President Donald Trump’s trade war.

“We cannot declare victory on inflation yet,” she said, adding that the bank was alert to the risks of cutting “too much, too soon” and questioning market views that it could enact three further reductions this year.

The rate cut, the RBA’s first since November 2020 came as Australia prepares for a nationwide election against a backdrop of elevated costs of living.

The central bank has been put under constant pressure to begin to ease its monetary policy, with some economists arguing that the strain of higher borrowing costs on mortgage holders could push the country into recession.

In a statement, the RBA said it would retain a restrictive policy.

‘While today’s policy decision recognises the welcome progress on inflation, the board remains cautious on prospects for further policy easing,” it said, noting that other central banks have slowed their pace of rate cuts in recent months.

Australia is due to hold an election in mid-May, but Prime Minister Anthony Albanese has yet to set a date. Many politicians are stressing the significance of the timing of this rate cut with the election just round the corner.

The cut on Tuesday began the process of reversing a run of 13 rate rises since May 2022. The RBA, which was more cautious in raising rates two years ago, has also been slower to begin reducing them and the move came as other central banks have shifted to a more sheepish stance as inflation has persisted.

The upcoming election is expected to be contested over the cost of living and the Labour government’s economic management.

Andrew Grant at the University of Sydney Business School said the rate cut would ease some of the pain of the cost of living for Australians, particularly those holding large mortgages. This being a small indicator of better things to come amongst the large uncertainty in the atmosphere as the election draws closer.