- The Reserve Bank of Australia has implemented its first rate reduction since the pandemic by cutting rates by 0.25% to 4.1%, marking the end of a four-year pause in rate decreases.
- While inflation has returned to the target range of 2-3%, the RBA remains cautious about further cuts to prevent inflation from settling above the desired range.
- The US Federal Reserve maintains a conservative stance on rate cuts due to sticky inflation and political uncertainties surrounding Trump’s second term.
- Amid global economic uncertainty, the crypto market faces challenges with Bitcoin experiencing a 5% monthly decline while analysts predict a new four-year market cycle.
The Reserve Bank of Australia (RBA) has finally broken a four-year hiatus and announced it would lower interest rates for the first time since the pandemic had caused a sharp rise in inflation.
Unfortunately, RBA governor Michele Bullock was quick to shut down speculation that more cuts are to come soon.
The market is expecting quite a few more interest rate cuts in the middle of next year, about three more on top of this. Whether or not that eventuates is going to depend very much on the data. Our feeling at the moment is that that is far too confident.
Michele Bullock, RBA Governor The 0.25% rate cut brings the cash rate down to 4.1% after having been steady at 4.35% since November 2023, when the last rate hike disappointed homeowners nationwide.
Australia Well Within Target Inflation
The RBA said in a statement it’s concerned that “if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range”.
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Overall, they confirmed their commitment to “return inflation to target and will do what is necessary to achieve that outcome”.
The official policy targets inflation within a 2-3% range, with current figures comfortably within this target following the post-Covid adjustment.
While the RBA itself downplayed the chance of further cuts, Matt Grudnoff, Senior Economist at The Australia Institute said that “even after this rate cut, interest rates are still restrictive”, and more cuts are expected.
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.
Matt Grudnoff, Senior Economist at The Australia Institute Experts Say Don’t Expect US Rate Cuts Soon
Meanwhile in the US, where rates were cut much earlier than in Australia, investors may need to wait a little longer for further cuts.
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As per Morningstar, PIMCO economist Tiffany Wilding said inflation is stickier than the Federal Reserve would like it to be, adding that the US is entering “into this period of elevated government policy uncertainty”, following the start of Donald Trump’s second term.
Trump’s tariffs and their impact on growth and inflation is still something markets need to figure out, which could mean the Fed is in “wait-and-see mode”, according to Simon Dangoor, head of Fixed Income Macro Strategies at Goldman Sachs Asset Management.
Fed Chair Jerome Powell also said recently that they “do not need to be in a hurry to adjust our policy stance”.
Analyst Says New Four-Year Cycle Has Begun
With all this uncertainty, the crypto market is having a hard time keeping momentum going. The largest crypto, Bitcoin, dropped to US$95,142 (AU ($9.91)$149,868), a 5% drop over the past month.
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Crypto analyst RektCapital believes that we will see the top this year and a bear market to follow in 2026, with a market low in 2027 and the start of the next bull run.
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