The Reserve Bank of Australia has stated that it is ready to take decisive measures in response to any worsening of the global economy, indicating that it could implement rapid cash rate cuts if Donald Trump’s tariffs lead to further market disruptions. The minutes of the RBA’s meeting on 20 May, which were made public on Tuesday, showed that the monetary policy board contemplated implementing a significant 50 basis point rate cut in the previous month. However, this decision was deferred as there was no immediate evidence that the Australian economy had been adversely affected by the US trade policies.
Instead, the RBA opted for a quarter point rate cut in light of declining inflation and weak household spending. The minutes of the meeting stated that a reduction of 25 basis points would ensure that monetary policy remained stable during a period of heightened uncertainty, in line with market expectations. The board also made it clear that they would be ready to respond proactively should international developments have significant implications for activity and inflation in the Australian context.
In light of these developments, the RBA’s stance is seen as possibly leading to lower interest rates, which could be both beneficial for mortgage holders and concerning for housing prices, potentially fueling another property market boom. Governor Michele Bullock acknowledged the potential influence of lower borrowing rates on property prices but emphasized the role of federal and state governments in addressing housing shortages.
Economists view the May rate cut as a move towards a more neutral stance on rates after a period of higher borrowing costs. Despite a slightly higher-than-expected inflation reading in April, market expectations remain high for another rate cut in early July. The cost of home loans has already spurred growth in house prices across the capital cities, according to Matthew Hassan, a senior economist at Westpac. This trend is likely to continue with further rate cuts, potentially increasing property prices at a faster rate than wages in 2025, despite ongoing cost of living challenges for borrowers.
Source: https://www.theguardian.com/australia-news/2025/jun/03/rba-rapid-fire-rate-cuts-minutes-reveal
