The treasurer is holding his press conference in Canberra – he says he has spoken to the banks, and is pleased to see that they are passing on the rate cuts (scheduled of course).

Of course one of the first questions is around the election.

Chalmers says:

We’ve been in the cabinet suite next door for most of today and most of yesterday preparing for and planning for a budget on 25 March. That’s what we’re working towards. We acknowledge the timing of the election is a matter for the prime minister, in consultation with his senior colleagues. But we’re working towards that budget. That’s why the ERC [expenditure review committee] met for about four or five hours yesterday and another three or four hours this morning.

Not surprisingly, real estate agents are delighted.

The Real Estate Institute of Australia wants buyers to get their wallets out.

“With house prices moderating and real wages growing at their fastest rate in a decade, further improvements in affordability can be expected during 2025,” it says in a statement.

Along the same lines, the Housing Industry Association Chief Economist Tim Reardon says:

“Today’s decision will be welcomed by many, including many aspiring homeowners who, with renewed confidence, will re-enter the market and build their own home.”

The Commonwealth Bank has announced it will pass on the rate cut, effective 28 February, tweeting:

“Following the RBA’s decision to decrease the official cash rate by 0.25% p.a, CBA will decrease home loan variable interest rates by 0.25% p.a.”

ANZ and NAB will do the same, meaning all four big banks have announced they’ll pass on the rate cut in full.

The Australian Council of Social Service is among those responding to the rate cut – with ACOSS CEO Dr Cassandra Goldie saying there is more that needs to be done to help those truly struggling:

This rate cut is long overdue but will not be nearly enough to help people who are really
struggling.
The next government will have to take more action to protect living standards. Millions of
people on low and fixed incomes, many of whom do not have mortgages, need more than rate
cuts. They need direct government support.
Our surveys consistently show that people receiving income support skip meals and go without
essential medical treatment because the payments are so low. The government must urgently
raise the rate of income support to a level that allows people to afford the basics of life.”

Westpac wins the race to be the first of the big banks to pass on the interest rate cut.

Or, at least, to say it will.

The cut won’t come into effect until the end of the month for some borrowers, March 4 for most.

Chief Executive (Consumer) Jason Yetton says:

“Today’s decision will be welcome news for mortgage customers. By reducing the
standard variable home loan rate by 0.25 per cent per annum, customers will save an
extra $90 per month, or $1,080 per year, based on a $500,000 home loan with principal
and interest repayments.”

“Customers could use this as an opportunity to get ahead on their mortgage by putting
the extra savings into their mortgage repayments, or into their offset account to help
reduce the interest on their loan.”

Here’s what it means for home loan customers:

• Westpac will decrease home loan variable interest rates by 0.25% p.a. for new
  and existing customers, effective 4 March.

Underlying inflation is the one that economists (and the RBA look at).

It’s the inflation rate when you take out the volatile stuff from the CPI basket – the stuff that moves in price (the biggest increases and the biggest falls) – they just get what is happening in the middle.

The main reason the RBA cares about it is because historically – let’s say a cyclone causes the CPI to increase, then they aren’t going to react on a one-off or a volatile price increase. So it’s meant to be a safeguard.

But somewhere along the way, it has become the main measure the RBA says it is targeting. Which is part of the reason the central bank has been so tardy in cutting rates. Inflation is at 2.4% (which is in the target band of between 2-3%) while underlying inflation is at 3.2%. So the bank has been looking at the second measure, hence the delay.

The Greens are urging the banks to pass on more than today’s 0.25% rate cut.

Fat chance.

Here’s the Greens’ statement in full:

The Australian Greens say the Reserve Bank’s decision to cut interest rates will do little to
provide relief for households being smashed by the cost-of-living crisis, and have called on the
big banks to pass on more than a 25 basis point cut.
Quotes attributable to Australian Greens Treasury spokesperson, Senator Nick McKim:
“The Reserve Bank has cut rates by 25 basis points today, the big banks should now cut their
rates by 50.
“Bank corporations are happy to increase their mortgage rates by more than the RBA puts them
up when it suits them. They should do the same now rates are falling.
“People need relief, and the obscene profits of the big banks give them plenty of room to move.
“Last year the big four banking corporations reported a combined profit after tax of $29.9 billion.
They can afford to do some of the heavy lifting to provide people with interest rate relief.
“People need cost-of-living relief now. We should be taxing the big corporations and billionaires
to fund the things people need, like getting dental and mental health into Medicare, and seeing
the GP for free.
“We should be tackling the soaring cost of rents and groceries by capping rent increases and
ending supermarket price-gouging.
“This election, we can’t keep voting for the same two parties and expecting a different result.
“There will be a minority government and the Greens are within reach of winning seats right
across the country. Last time there was a minority, the Greens got dental into Medicare for kids.
“With a minority government, the Greens will keep Dutton out and get Labor to act.”

Treasurer Jim Chalmers has released a statement following the rate cut.

We expect to hear from him soon.

Here’s Mr Chalmers’ statement in full:

Today the independent Reserve Bank of Australia Board decided to lower the
cash rate by 25 basis points to 4.10 per cent.
This is very welcome news for millions of Australians.
This is the rate relief Australians need and deserve. 
It won’t solve every problem in our economy or in household budgets but it will
help.
Today’s result is a demonstration of the substantial and sustained progress we’ve
made on inflation together.
When we came to office, interest rates were going up, now they are going down.
For a household with a mortgage of $500,000, this rate cut will save them $80 a
month, or $960 per year.
Under Labor, inflation is down, wages are up, unemployment is low and now
interest rates have started to come down too.
This is the soft landing we have been planning for and preparing for but we know
there’s more work to do.
Other countries have had to pay for progress on inflation with higher
unemployment, growth going backwards or even a recession.
Inflation is now almost a third of the 6.1 per cent we inherited, and that’s a
testament to the efforts of all Australians.
In its statement today, the RBA Board said we have made welcome progress on
inflation and that inflationary pressures are easing more quickly than expected.
Today’s decision and the statement from the Board gives us further confidence
that the worst of the inflation challenge is behind us, but we can’t be complacent.
Today’s decision is welcome but it’s not mission accomplished because people are
still under pressure.
The Government will maintain a primary focus on the cost of living.
When we came to office, real incomes were going badly backwards.
Now they’re growing again due to moderating inflation, wages growth, jobs growth
and our tax cuts.
Lower mortgage costs will also support the growth of real disposable incomes into
the future.
Australians would be thousands of dollars worse off if Peter Dutton had his way on
tax cuts, wages and energy bill relief – and worse off still if he wins the election.
The biggest risk to the progress we have made together is a Coalition government
that would come after Medicare again, push wages down again, and push
electricity prices up with more expensive nuclear energy.
We’re fighting inflation, helping with the cost of living and building Australia’s
future, and this encouraging decision shows our policies are making a meaningful
difference

Here is what the minutes say:

Inflation has fallen substantially since the peak in 2022, as higher interest rates have
been working to bring aggregate demand and supply closer towards balance. In the
December quarter underlying inflation was 3.2 per cent, which suggests inflationary
pressures are easing a little more quickly than expected. There has also been continued
subdued growth in private demand and wage pressures have eased. These factors give
the Board more confidence that inflation is moving sustainably towards the midpoint of
the 2–3 per cent target range.

However, upside risks remain. Some recent labour market data have been unexpectedly
strong, suggesting that the labour market may be somewhat tighter than previously
thought. The central forecast for underlying inflation, which is based on the cash rate
path implied by financial markets, has been revised up a little over 2026. So, while
today’s policy decision recognises the welcome progress on inflation, the Board remains
cautious on prospects for further policy easing.

Today’s long-overdue decision by the Reserve Bank of Australia to cut interest rates is a good start.

Like all borrowers, The Australia Institute welcomes the 0.25% cut in the official cash rate. It should have happened months ago. 

History tells us that interest rate cuts never happen as a one-off.

Whether or not we are in an election campaign, even if we’re just days out from an election, on April 1, the RBA should cut again.  

“To suggest there should be no cut in April because it would appear political is absurd,” said Greg Jericho, Chief Economist at The Australia Institute. 

“Treasurer Jim Chalmers constantly reminds us the Reserve Bank is independent of government. 

“A rate cut in April would have nothing to do with politics. In fact, it would be political not to cut just because we are in an election campaign.

“Home owners should not be denied the next cut because of politics. It should be a purely economic decision. 

“Today, the RBA has finally recognised that with inflation in the bottom half of its target range, with wage growth slowing and unemployment remaining steady and with the government subsidising energy prices to keep inflation down that the time has come to cut rates.

“The 25 basis point cut will save households around $100 a month on a $600,000 loan. It is small but necessary drop that has been long overdue but it better late than never.”

“Even after this rate cut, interest rates are still restrictive. With the economy stalling and inflation now in the target band, the RBA needs to continue to cut rates, so they are no longer slowing the economy,” said Matt Grudnoff, Senior Economist at The Australia Institute.