At last, Sydney’s heavily indebted home borrowers have reason to smile.
Tuesday’s decision by the Reserve Bank of Australia to cut official interest rates by 0.25 of a percentage point is especially welcome in a city where the high cost of property means many households live with huge mortgages.
With Australia’s economic growth rate anaemic, and the consumer price index within the RBA’s target band of between 2 and 3 per cent for the past six months, the case for a rate cut was compelling.
Anthony Albanese’s election timing will be influenced by Michele Bullock’s decision to cut ratesCredit: Michaela Pollock
A statement by the bank’s board, accompanying the decision, said inflationary pressures had eased “a little more quickly” than expected. It also noted private demand in the economy had been weak and that wage pressures had eased. The RBA also cut its forecast for economic growth this financial year from 2.3 per cent to 2 per cent – well below the long-term trend.
The rates decision begins to reverse the interest rate spike of 2022 and 2023 that followed an inflationary surge triggered by the disruptions of the pandemic and Russia’s war on Ukraine. Mortgage holders were hit with 13 hikes in just 18 months – the sharpest tightening of the interest rate screws in at least 30 years.
The RBA has repeatedly compared its efforts to lower inflation without triggering a recession and high unemployment to navigating a “narrow path.”
While risks remain, Tuesday’s interest rate cut suggests the bank has, so far, managed to strike the right balance.
Despite the rapid increase in rates in 2022 and 2023, mortgage arrears and defaults have been less prevalent than expected and unemployment has remained low by historical standards.
In NSW, the jobless rate in December was just 3.8 per cent, a heartening result given the years of cost pressures endured by the state’s households and businesses.
