Australia’s big four banks have been quick to confirm they will pass on Tuesday’s official interest rate cut to borrowers.

The banks took less than an hour after the Reserve Bank confirmed it had cut rates by a quarter of a percentage point to announce they would reduce their own variable rates.

The widely anticipated decision, as the RBA flagged concerns about global economic uncertainty, follows a first 25 basis point-cut in February.

It 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.

“Today’s decision will help to deliver some much-needed additional relief for many Australians with a mortgage,” said Angus Sullivan, group executive retail banking services at the Commonwealth Bank, Australia’s largest home lender.

“When combined with the February rate cut, this change should free up some more cash flow for homeowners who need it. We know many have had tighter budgets in recent months and will welcome that additional flexibility.”

Borrowers with a median mortgage of $600,000 can expect to pay about $90 less a month in interest repayments. The CBA said its customers on average $500,000 loans would save $80 a month.

Treasurer Jim Chalmers said it was very welcome relief for millions of Australians.

“When it comes to inflation, both headline and underlying inflation are now both in the Reserve Bank’s target band for the first time in almost four years,” he said.

“This is the first time since records began that we’ve got the unemployment rate in the low fours at the same time as we’ve got both measures of inflation in the target band at the same time.

“We know that the job is not finished we know that there’s more work to do, but this is a very good development and we welcome it.”

In her post-meeting statement, RBA governor Michele Bullock said the central bank board acknowledged it had been a tough time for many Australians.

“But it was essential we brought inflation down because inflation hurts everyone,” she said.

“The strategy that we took to achieve this was different to that of some other central banks, who took rates much higher than we did.

The board accepted the trade off that, leaving the cash rate where it was would bring inflation down more gradually, but without a big increase in unemployment – a sharp rise in unemployment would have been very costly for families and for the Australian economy.”

Money markets and most economists had tipped the cut ahead of the RBA board’s announcement, 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 2-3 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.

“Since our last meeting [in April], global economic and policy uncertainty has increased substantially following tariff announcements by the US administration,” Bullock said.

“The response of its trading partners and subsequent changes to the policies, including various bilateral agreements and deals – it’s been a complete roller-coaster.”

The board judged that the global trade turmoil would be disinflationary in Australia.

“However, there is a risk to inflation on the other side; the trade policies could lead to supply chain issues, which could raise
prices for some imports, much as we saw during the pandemic,” Bullock said.

“We’ll also need to be alert to such upside risks.”

In its quarterly update to its economic forecasts, the RBA lowered its prediction for underlying inflation from 2.7 per cent to 2.6 per cent by the middle of the year, as a result of Donald Trump’s trade war.

Australia’s economy is tipped to grow 0.3 percentage points slower in 2025 at 2.1 per cent, while inflation is expected to peak 0.1 percentage higher at 4.3 per cent.

-with AAP