Interest rates: Cautious RBA gives a little but warns there will be a long wait ahead for more

The Reserve Bank has delivered the slightest of reprieves of homeowners but sent a clear warning that this is not going to be the start of a strong cutting cycle.

In its statement the bank says it will be cautious on the outlook, still concerned about upside risk to inflation.

“If monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range,” the bank said.

“In removing a little of the policy restrictiveness in its decision today, the board acknowledges that progress has been made but is cautious about the outlook.”

A strong labour market was of particular concern, with the bank concluding that conditions remain tight and “tightened a little further in late 2024.”

Markets have taken the hawkish tone as a sign there will little to help earnings, with the All Ordinaries down 0.6 per cent.

The Australian dollar spiked briefly on the expectation there would a pause in any further rate cuts, before tracking back to be down 0.2 per cent on the open.

Deloitte Access Economics economist Stephen Smith said the cut would shore up economic growth through 2025 but called the decision a “loss of credibility of the Reserve Bank’s communication”. Mr Smith felt the previous statements the bank was concerned about strong services inflation and a high level of aggregate demand should have led it to keep rates on hold.

AMP’s Shane Oliver was more positive expecting the RBA to hold rates in April and cut again in May and August to take the cash rate to 3.6 per cent.

Despite only adding about $25 a week to the budget of the average mortgage holders, spread over the economy the rate cut should deliver some $3.7 billion in available spending to consumers.

That should support greater retail spending and help one of the most embattled segment of the Australian economy - the hospitality sector.

Business groups welcomed the cut but warned that any outbreak in inflation would be damaging. Labour tightness is still a constraint for employers and a failure to lift productivity will mean any wage rises will push up costs.

Today’s decision will be welcome by all but watched closely into the future.