Cash Rate Decision February 2025: RBA Lowers Cash Rate to 4.10%

The Reserve Bank of Australia (RBA) has reduced its cash rate target to 4.10% during its February 2025 meeting.

Why Did The RBA Lower The Cash Rate In February 2025?

In its latest statement, the RBA outlined several key reasons for its decision:

• Easing Inflation: Inflation has greatly declined since its peak in 2022. In the December quarter, underlying inflation was recorded at 3.2%, indicating a faster-than-expected easing of inflationary pressures. This trend suggests progress towards the RBA’s target range of 2-3%.
• Subdued Private Demand: There has been continued subdued growth in private demand, reflecting cautious consumer spending and business investment. This moderation in demand contributes to ease inflationary pressures.
• Eased Wage Pressures: While the labour market remains tight, wage growth has slowed more than expected, reducing the risk of a wage-price spiral. However, the RBA noted that productivity growth has not improved, which means businesses are still dealing with high unit labour costs.
• Uncertainty in the Labour Market: Recent data suggests that the labour market may be tighter than previously thought. Measures of underuse have declined, and businesses still report difficulty in finding workers. If labour market conditions stay stronger than expected, inflation risks could remain.
• Global Economic Uncertainties: The RBA highlighted ongoing geopolitical risks and global economic uncertainty, which could impact Australia’s economy. Most central banks have started easing monetary policy, but market expectations for rate cuts have moderated, particularly in the US. These uncertainties necessitate a cautious approach to monetary policy.

Despite today’s rate cut, the RBA remains cautious. The board stated: “Some of the upside risks to inflation appear to have eased and there are signs that disinflation might be occurring a little more quickly than earlier expected. There are, nevertheless, risks on both sides.”

In other words, while the inflation outlook is improving, the RBA is not yet convinced that it is safe to continue cutting rates aggressively.

What Do Our Experts Say About The RBA’s Decision?

Jonathan Preston, Senior Mortgage Broker at Home Loan Experts, shared his perspective on the RBA’s decision: “They cut the rate. I expect the market will have slightly more optimism initially, but that optimism might start to fade until further cuts come through. And I don’t think the economy is bad enough for more than one cut, which would have the effect of hurting the Aussie dollar, causing us to import inflation. The prices of many imported goods would go up.

Mortgage Broker Siddhartha Bajracharya added that what happens next may depend on how the public reacts to today’s news. “I think we now need to watch carefully what Australians do with the savings in interest from this rate cut,” he said. “Will they spend more in the market (increasing inflation) or invest in different assets (which would contribute to economic growth). Depending on which one most people do, the RBA could either hold the rate in coming months and watch, or do another rate cut next month. I reckon the government will be keen to see the next inflation/CPI figures.”

How Does The Cash Rate Affect My Interest Rate?

Lenders add a margin to the official cash rate to determine the variable interest rate they offer to customers. If you have a variable interest rate, it will almost certainly decrease when the cash rate is cut.

If the cash rate drops from 4.35% to 4.10%, your variable loan interest rate could decrease by 0.25 points, potentially reducing your repayments.

You can use our repayment calculator to find out what your repayments should look like whenever the cash rate changes.

Homeowners: Don’t Miss Out on Lower Rates!

With the cash rate now at 4.10%, you might be paying more than you need to on your home loan.

Our brokers will compare 50+ lenders to find you a better deal, hassle-free.

Get A FREE ASSESSMENT