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(Bloomberg) -- Australia’s central bank cut interest rates for the first time in four years as price pressures cool while stressing it won’t ease as aggressively as markets anticipate.
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The Reserve Bank lowered its cash rate by a quarter-percentage point to 4.1% in a widely expected decision while warning in its statement Tuesday that reducing borrowing costs too quickly could result in disinflation stalling. It also flagged significant geopolitical and policy uncertainties globally.
Governor Michele Bullock, at the briefing that followed, reiterated that policymakers will be data-driven and cautioned the market against pricing in rate cuts in succession. Stocks extended their drop and closed 0.7% lower while yields on three-year government bonds rose further after her remarks.
“I want to be very clear that today’s decision does not imply that further rate cuts along the lines suggested by the markets are coming,” Bullock said in Sydney.
“The board needs more data and evidence that inflation is continuing to decline before making decisions about the future path of interest rates,” she said. “The board is very alert to upside risks that could derail the deflationary progress.”
The yield on policy sensitive three-year notes climbed six basis points during Bullock’s press conference as traders pared expectations of further rate cuts by the RBA. Now, they are fully pricing just one rate cut and less than 80% chance of a second this year, down from expectations of at least two more prior to the decision, according to swaps data compiled by Bloomberg News.
The decision may provide a shot in the arm for Prime Minister Anthony Albanese as he seeks a second term in office in an election due by May 17. His ruling Labor party is trailing the opposition Liberal-National coalition in opinion polls and cost-of-living and housing have been among the top concerns for the electorate.
Treasurer Jim Chalmers said in a press conference in Canberra that the rate cut was “the soft landing that we have been planning for” and offers a “relief that Australians need and deserve.” Like the RBA, the treasurer didn’t declare victory in the fight against inflation, sharing the central bank’s concerns about the uncertain economic outlook going forward.