Australia's central bank has reduced its key interest rate by 25 basis points, marking the first cut in over four years. On January 2025, the Reserve Bank of Australia (RBA) board decided to lower the cash rate from 4.35% to 4.1%. This decision comes as a relief for the Labor government, which is grappling with soaring living costs ahead of an upcoming election.
The RBA, a nine-member board, made the decision after closely examining inflation data. Australia's headline inflation stood at 2.4% in December 2024, a significant decrease from its peak of 7.8% in late 2022. The central bank's move reflects an effort to stabilize the economy and ease financial pressures on households.
The cash rate had been held steady at 4.35% since November 2023, following a series of 13 interest rate hikes since May 2022. These increases had driven the cash rate to a 13-year high, putting substantial strain on consumers and businesses alike. By reducing the rate, the RBA aims to provide some economic relief and support growth.
For the Labor government, this reduction is a strategic advantage as it seeks to manage the nation's cost-of-living challenges. With an election on the horizon, addressing inflation and economic stability has become a pivotal issue for the government. The interest rate cut is expected to alleviate some financial burdens on Australians as inflation continues to moderate.
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