The Reserve Bank of Australia (RBA) has lowered the official cash rate target by 25 basis points to 4.1%, marking the first cut since November 2020. This decision follows a drop in Australia's annual headline inflation rate to 2.4% in December, down from 7.8% in December 2022.
RBA Governor Michele Bullock acknowledged the bank's delayed response to rising inflation, noting that interest rates were not raised quickly enough. Despite this, the RBA will proceed cautiously with future rate cuts to avoid derailing the progress made in combating inflation.
In related news, the RBA assessed the potential impact of US President Donald Trump's tariffs on steel and aluminum imports, stating that Australia is less vulnerable compared to other countries. Assistant Governor Sarah Hunter indicated that the tariffs would have a relatively small impact on Australia's GDP, contingent on how other nations respond.
The Australian government is currently seeking an exemption from these tariffs, following a precedent set during Trump's first term.