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The Guardian
3 days ago
- Business
- The Guardian
RBA ready to use rapid-fire rate cuts if Trump policies rattle Australia's economy, minutes reveal
The Reserve Bank of Australia is prepared to 'respond decisively' to any deterioration in the global economy, paving the way for rapid-fire cash rate cuts if Donald Trump's tariffs spark further market upheaval. The 20 May RBA meeting minutes, released on Tuesday, show the rate-setting board discussed implementing a bumper 50 basis point cut last month. But they decided such a move was not yet warranted because there were no immediate signs the economy had been significantly affected by the US trade policy. The RBA decided on a quarter point cut instead, amid falling inflation and weak household consumption. Sign up for Guardian Australia's breaking news email 'A 25 basis point reduction would ensure that monetary policy settings remained predictable at a time of heightened uncertainty, given market expectations,' the minutes said. 'And it would leave the board well-placed to respond as needed as the economy evolved.' The RBA noted it would 'respond decisively to international developments if they were to have material implications for activity and inflation' in Australia. In that scenario, the RBA would cut rates faster than currently forecast to support the Australian economy. The May minutes will inflate the hopes of mortgage holders of another near-term reprieve in lending rates. This marks a stark change in tone from RBA meetings earlier this year when the central bank warned against expectations of further cuts. While more rate cuts will be welcomed by indebted mortgage holders, a reduction in borrowing rates threatens to fuel another surge in house prices, making property even more unaffordable for prospective buyers. The RBA governor, Michele Bullock, acknowledged last month that falling borrowing rates could drive property prices higher, but said the onus was on federal and state governments to resolve housing shortages. Sign up to Breaking News Australia Get the most important news as it breaks after newsletter promotion Economists viewed the May rate cut as a shift back towards a neutral rate setting that neither ignites nor constrains the economy after a prolonged period of elevated borrowing costs. After the May meeting, Australia recorded a slightly hotter-than-expected underlying inflation reading. While this could temper calls for a rate cut at the next meeting in early July, the market is pricing in a near 80% chance of a 25 basis point cut to 3.6%. The falling cost of home loans has already driven house prices up across every capital city, according to Matthew Hassan, a senior economist at Westpac. 'The RBA's latest rate cut [is] adding clear impetus,' Hassan said. 'Prices are now up 1.7% since the RBA began easing interest rates in February.' Nearly 3,000 homes went to auction in the last week of May, the second highest figure for 2025, according to property analytics firm Cotality. Surging momentum pushed the auction clearance rate to 65.1% the week before that, the highest since July 2024. Further rate cuts will see buyers force up national home prices at a faster rate than wages over 2025, analysts expect, despite persistent cost-of-living pressures on wages were raised 3.5% on Tuesday and the Reserve Bank expects national wage growth will sit at just 3.3% by the end of 2025.
News.com.au
27-05-2025
- Business
- News.com.au
Mark Bouris: RBA's cut is a sugar hit that will sour housing affordability
Last week's Reserve Bank decision to cut interest rates brought relief to millions of mortgage holders. After a bruising cycle of hikes, you can feel the relief in the air. But at what cost? Because while rate cuts offer short-term comfort, they risk stoking an already overheated housing market. And that means one thing: housing is about to become even less affordable. Let's be clear: rate cuts are a double-edged sword. Yes, they lower repayments and ease the squeeze. But they also flood the market with cheap money. Buyers borrow more. Prices rise. Great news if you already own. Terrible news if you're still trying to get in. We're caught in a debt trap. The Reserve Bank can't raise rates meaningfully without triggering a wave of defaults. Household debt is sky-high. Even modest increases shake the system. The RBA knows this. So instead, it protects the status quo. And to be fair, rate cuts do work – for those who already own property. They free up cash flow, ease pressure, and lift spending. But there's a catch. Lower rates mean lenders assess new borrowers at a lower threshold. That boosts borrowing power. Bigger loans follow. And that extra money goes straight to the vendor, inflating prices across the board. The RBA isn't blind to this. It's just playing the numbers. Far more struggling borrowers are trying to stay afloat than first-time buyers are applying for loans. In a grim way, the outcome is logical. But for young Australians shut out of the market, it's cold comfort. They've been told – again – that they are not the priority. There's another consequence: a weaker dollar. With lower rates, investors look elsewhere. The currency slides. Just look at gold. Today, an ounce fetches over $5,000. Ten years ago, it was just $1,500. That's not just a rise in gold. That's a glaring decline in our currency's real value. A weaker dollar means pricier imports, adding to inflation. It also inflates the value of assets – particularly property. Once again, the young and asset-poor lose. And those already holding property? They watch their equity grow. Meanwhile, housing supply is in crisis. Builders are going bust. Material costs are soaring. Labour is scarce. And our domestic manufacturing base? Hollowed out. We import most of what we build with – mainly from China. That's risky. It's also degrading quality. Many new homes aren't built to last. Then there's the trade crisis. And let's be honest – it's cultural. For years, Aussie parents have funnelled their kids into law, marketing, or business degrees. University is seen as the only real path to success. But it's failing us. We don't need more lawyers. We need electricians, carpenters, plumbers, bricklayers. People who build and fix things. These aren't fallback careers. They're the backbone of a working economy. Without them, the system collapses – costs blow out, quality drops, and nothing gets built. Add to this our sky-high immigration intake, and demand for housing keeps climbing. But supply can't keep up. This isn't about blaming migrants. It's about having a workable population strategy. Even UK Labour prime minister Keir Starmer has said 'enough is enough' on immigration, warning that without matching infrastructure and housing, the model falls apart. Australia should take note. We're backed into a corner. Rate cuts ease today's pressure but tighten tomorrow's noose. Unless we fix the foundations – housing supply, manufacturing, debt, skills and population growth – we'll deepen inequality and entrench generational disadvantage. Surely, we can do better.
News.com.au
20-05-2025
- Business
- News.com.au
ASX 200 bolstered on Tuesday following RBA rate cut
Sky News Business Editor Ross Greenwood says the local markets had 'fully anticipated' the Reserve Bank's quarter of a per cent rate cut. Australians have been delivered the second rate cut of 2025 in some much-needed financial relief for millions of cash-strapped mortgage holders. 'The overall stockmarket took off at the outset ... and held onto those gains,' Mr Greenwood said. The ASX 200 closed up 0.58 per cent on Tuesday.
