EDITORIAL: Rate cut might not deliver relief to Labor

Anthony Albanese is desperately hoping that Tuesday’s long-awaited rate cut will take some of the edge off voters’ deepening discontent with his Government.

But just how far can one measly cut of 25 basis points go against the 13 hikes borrowers have faced since May 2022?

The average cost to service a $500,000 has risen more than $1200 a month since May 2022. This cut will claw back just $80 of that increase. That will barely touch the sides.

There’s a danger that the Reserve Bank’s decision will do more to remind mortgage-holders of just how much their repayments have risen than it will to overwhelm voters with fuzzy feelings of gratitude towards their Government.

Still, Labor are latching onto the news, because it’s the best chance they have of hoping to shape a positive narrative as we enter the election campaign proper.

The relief was etched on Jim Chalmers’ face in the minutes after the RBA’s decision was made public.

This, the Treasurer declared, was the “rate relief that Australians need and deserve”.

“It won’t fix every challenge we have in our economy or in household budgets, but it will help.

“It’s a demonstration of the progress that Australians have made together in this fight against inflation.”

That’s a fight that Reserve Bank governor Michele Bullock was at pains to emphasise is not over. While inflation is receding, it remains outside the RBA’s 2-3 per cent target band.

“It’s not good enough for it to be back in the target range temporarily, the board needs to be confident it’s returning to the target range sustainably,” Ms Bullock said.

She was also quick to pour cold water on the conventional wisdom that rate movements in either direction usually come at least in pairs, saying the market was “too confident” in assuming another three cuts were in the pipeline for this year.

Despite most economists treating a downward adjustment to the cash rate as a foregone conclusion in the lead-up to this week’s board meeting, Ms Bullock said it had been subject to robust debate.

Looking at the data, the case for holding rates steady — even for just a few more months — was compelling. The labour market is still red hot. And with a Federal campaign certain to pump millions more into the economy as parties jostle to deliver election bribes cloaked as cost-of-living relief, the risk of inflation roaring back into life is real.

Was Tuesday’s rate cut a submission from Ms Bullock in the face of overwhelming political pressure? To have kept rates steady would have won her no friends. Cutting has opened her up to accusations of capitulation.

This was a big call — the biggest in Ms Bullock’s time as RBA governor. Perhaps against her better judgment, she’s taken the punt that the economy will be able to absorb this cut without pushing inflation back up.

Let’s hope that’s a bet she wins. If it backfires, we’ll all be paying the price.