Relief for borrowers as RBA hands down second rate cut

The Reserve Bank of Australia has cut interest rates by a quarter of a percentage point in a widely-anticipated decision.

Following the central bank’s first 25 basis point cut in February, the move brings the official cash rate down to 3.85 per cent.

It’s the first time the key interest rate has had a three in front of it in two years.

Borrowers with a median mortgage of $600,000 can expect to pay about $90 less per month in interest repayments, assuming banks pass the rate cut on in full.

Money markets and most economists had tipped the cut ahead of the RBA board’s announcement on Tuesday afternoon, citing moderating inflation, sluggish consumer spending and a dour economic growth outlook fuelled by trade uncertainty.

The consumer price index for the March quarter remained steady at 2.4 per cent, while trimmed mean inflation, which removes volatile price movements, dropped to 2.9 per cent.

Both measures are within the Reserve Bank’s target band of two to three per cent.

But stronger-than-expected unemployment and wages growth, as well as a pause in trade hostilities between the US and China, reduced the urgency for the RBA to remove monetary restrictiveness.

Predictions of a bumper 50 basis point cut all but evaporated ahead of the meeting.

Given the widespread expectations of a rate cut, traders will turn their attention to governor Michele Bullock’s post-meeting press conference for signs of where the board is likely to go next.

How much Ms Bullock pushes back on market pricing of the cash rate, as she did following the February decision, will feed into investor confidence of further cuts.