Live updates: RBA set to cut interest rates for the first time since 2020, ASX to rise

Beyond rates, today’s big news is a slump in profit from our second-most-valuable company, BHP.

Saxo Asia Pacific senior sales trader Junvum Kim says the drop, on the corresponding period last year, sounds a warning:

“BHP Group’s 23% profit decline highlights the vulnerabilities of relying heavily on Chinese demand, with earnings falling to USD 5.08 billion and an eight-year-low dividend. 

“CEO Mike Henry’s optimism about demand from other major economies provides some reassurance, but the challenges from declining commodity prices and Cyclone Zelia (in Western Australia) remain worrisome. 

“Despite these issues, BHP’s continued low-cost production advantage and ambitious plans to expand to 330 million tonnes per annum (Mtpa) demonstrate a strategic focus on resilience and growth, positioning the company to capitalise on future opportunities.”

The flagship ASX 200 index is down -23.3 points or -0.3% to 8,513.8 points in early trade.

Among the early top movers, lifts in the share price of Star Entertainment, A2 Milk Company, Johns Lyng Group and Megaport.

On the early “losers” list, Challenger, Bapcor and JB Hifi.

It’s just under 4 hours until we get the outcome of the Reserve Bank’s first board meeting for 2025.

The RBA interest rates decision will be released at 2:30pm AEDT.

Stick with us here on the live interest rates blog for the breaking news as it happens, analysis, political reaction — plus we’ll answer some of your questions, too.

You can also watch ABC News Channel throughout the day:

Our competition watchdog will give the provisional go-ahead to a tie-up of domestic airline Virgin Australia and Qatar Airways.

Here’s some of the statement just out from the ACCC.

“Virgin Australia and Qatar Airways are seeking authorisation to engage in an integrated alliance where Virgin Australia, in partnership with Qatar Airways, will commence 28 new weekly return services between Doha and Perth, Brisbane, Sydney and Melbourne.

“Under the proposed arrangements, Virgin Australia would use Qatar Airways’ aircraft and crew to operate the new services. This is known in the aviation industry as ‘wet lease’ arrangements.

“The ACCC considers that the proposed cooperative conduct is likely to result in public benefits and is unlikely to result in any public detriment.”

ACCC commissioner Anna Brakey said the deal would be good for the public.

“We consider that the proposed cooperative conduct would likely result in several public benefits including providing enhanced products and services for air travellers which would include increased choice of international flights, with additional connectivity, convenience and loyalty program benefits for consumers.”

The new air services are subject to final regulatory approvals by the ACCC and other government bodies.

The ACCC is now seeking feedback on this draft determination before it makes a final decision.

Let’s say there’s a cut of 25 basis points, which is the consensus of the market indicators and most economists.

There will be a change to the cost of money, which will impact people in different ways based on their personal situation.

Because the biggest cost of living is housing, what your housing situation is largely dictates the impact.

Home loans: About one-third of Australians are paying off a mortgage, mostly on 25 or 30 year terms. Most are on a “variable rate” meaning it goes up and down based on the cost of money, so a cut will leave more money in their pocket at the end of the month.

Renters: About one in three (or 8-something million) Australians rent where they live. Many of the properties are subject to mortgages, and the increased costs of these have been passed on to tenants through higher rents. Reducing the cost of mortgages should ease some of this tension. (Rents have also been rising on the back of other factors like demand, increased immigration, a desire for more space, lack of supply, etc, so it is not just one factor).

Owners: Close to one in three (it’s the smallest of the “thirds”) Australians own their home. They are more likely to have large superannuation balances, assets and bank deposits, all of which have benefited in this higher interest rate environment. Cash sitting in the bank (deposits) will accrue less interest if the rates are cut, so the payments from them will be smaller.

Former RBA economist Dr Luke Hartigan, from the University of Sydney School of Economics, says inflation is down… so go for it:

“I expect the RBA Board to cut the cash rate by 25 basis points (bps) at the February meeting, as underlying inflation for Q4 2024 came in below the Bank’s expectations at 3.2 percent versus 3.4 percent. This suggests the pace of moderating inflation is ahead of where the Bank thought it would be by now. 

“On the flip side, the labour market remains tight, and household consumption is showing signs of improvement. Additionally, the AUD is under some pressure at present. This could be exacerbated if the cash rate is cut, and markets expect further cuts in coming months coupled with a less dovish US Federal Reserve Board.”

His colleague, Associate Professor Andrew Grant, comes to a similar (it’s very likely) conclusion:

“People are doing it tough right now, especially those who have taken out large mortgages in the past couple of years, so anything that puts a few dollars back in people’s pockets each month is going to be a huge relief. A rate cut would also potentially make it more affordable for people to enter the housing market, especially if there are further rate cuts to come.

“It’s not certain the RBA will cut rates, although the banks have certainly foreshadowed it with their moves. The Australian dollar is struggling a little bit and if they cut rates that’s likely to lead to further downward pressure, so that’s one of the factors that will be weighing on the decision.”

Thanks for reading Simon.

The general consensus is that the RBA will reduce the cash rate by 0.25 percentage points, which would take rates to 4.1%.

But David Bassanese, the chief economist at Betashares, thinks there’s a case for the RBA to cut rates by 0.35 percentage points.

If that were the case, the cash rate would then sit at a flat 4.0% — the lowest level since May 2023.

As for why Mr Bassanese is suggesting a 0.35 percentage point cut?

“So we can finally get the cash rate cut back to cleaner 0.25% level increments,” he wrote.

“The RBA could follow up this generous rate cut by playing down the prospect of another cut anytime soon (i.e. deliver a ‘hawkish cut’).”

That way, he argues, the RBA can deliver some rate relief while also keeping rates higher in case there are any surprises on the upside.

However, he also says that wage price data and unemployment figures out later this week will also justify a “larger” rate cut to the RBA.

(For what it’s worth, some economists have also speculated that there could be a 0.5 percentage point rate cut, but the majority expect 0.25 percentage points instead.)

That depends on who you ask.

While the Big Four banks all agree we’re in for a rate cut today, they’re less united on how many cuts we could get this year.

Ahead of today’s decision, here’s the current thinking from each of their economics teams:

• Commonwealth Bank: Four rate cuts
• Westpac: Four rate cuts
• NAB: Five rate cuts
• ANZ: Two rate cuts

There’s also every chance the banks will change their predictions after today, based on how the RBA views the economy more broadly in its post-meeting statement and press conference.

A new report suggests Australia remains one of the lowest-cost producers of milk in the world.

Rabobank’s research suggests the cost of producing milk here compares favourably with other dairy exporting regions, despite rises in global milk production costs across the past five years.

In ‘The cost of milk: dissecting milk production costs’, an agribusiness banking specialist says dairy farmers have felt the pressure of increasingly higher milk production costs over recent years.

The average total cost for milk production across eight major exporting regions (Argentina, Australia, China, Ireland, New Zealand, the Netherlands, California and the Upper Midwest of the US) increasing by about US6c/litre from 2019 to 2024 (up by 14 per cent) with over 70 per cent of the increase occurring since 2021.

Australia, though, was still one of the lowest-cost producers in 2024, the report said, second only to New Zealand, despite labour costs in Australia increasing significantly over the past five years. 

The report author, RaboResearch senior agricultural analyst Emma Higgins, said globally dairy production cost increases have been broad-based.

“The majority of the cost pressure has been on-farm working expenses rather than other ancillary costs, such as serving debt, taxes and depreciation. 

“The latest dramatic cyclical cost jump, beginning in 2021, has occurred amongst a unique backdrop, differing from other price hike cycles. Feed and fertiliser cost increases at the farmgate resulted from inclement weather, the fallout of the Ukraine war, rising energy prices, trade disruptions, elevated shipping costs 

“This coincided with monetary policy cycles shifting in response to Covid-induced inflation. Interest rates lifted rapidly, increasing the cost of servicing new and existing debt, alongside the resulting general overhead cost inflation. At the same time, labour costs moved structurally higher in response to either a combination of policy settings or staffing shortages in most producing regions.” 

Here’s how it looks.

In other news, BHP’s profit results are out.

• First-half profit down 23%, slightly ahead of consensus
• Iron ore earnings down 26% on lower prices
• Interim dividend of 50 cents per share

The mega-miner is our second most valuable listed company, worth more than $200 billion.

In statements today, BHP says it sees signs of economic recovery in China and central bank rate cuts reviving demand for steel and copper, but flagged risks to global growth from potential trade tensions as it logged its lowest first-half profit in six years.

The world’s largest listed miner on Tuesday reported an underlying attributable profit of $5.08 billion for the six months ending December 2024, down 23% from a year earlier but slightly ahead of the a consensus estimate of $5.01 billion.

BHP sounded a cautiously optimistic note about demand prospects for its two main products, steel ingredient iron ore, and copper, which has grown to account for nearly half of its profits.

“Central banks’ ongoing rate cuts are expected to translate into a recovery for steel and copper demand across the OECD (Organisation for Economic Co-operation and Development) in the near term.

“However, potential trade tensions present a risk to the recovery in developed economies and across the globe.”

Demand for BHP products remained strong despite global economic and trade uncertainties, with early signs of recovery in China, resilient economic performance in the U.S. and strong growth in India, chief executive officer Mike Henry said.

Underlying operating earnings for its copper operations jumped 44% to $5 billion as tight fundamentals, Chinese stimulus plans and interest rate cuts in the United States kept copper prices elevated.

In contrast, iron ore earnings declined 26% to $7.2 billion as the average realised price fell to $81.11 per wet metric ton from $103.7 a year ago.

BHP declared an interim dividend of 50 cents per share, in line with the consensus estimate of 50 cents apiece but below 72 cents per share declared last year.

It’s the question likely front of mind for those of us with a mortgage — just how much would an interest rate cut save you?

Financial comparison site Canstar has crunched the numbers on how much minimum repayments would drop, if the RBA decreases the cash rate today and the banks pass that on to borrowers:

Canstar’s numbers are based on an owner-occupier making principal and interest repayments, with 25 years left on the loan.

It assumes the loan is currently on an average variable rate for existing borrowers of 6.33%, and is based on the banks passing on rate cuts in full.

If you want to reduce your repayments in line with a reduction in interest rates, you should call your bank to make sure your payments are decreased to the new minimum.

And even if you don’t reduce your repayments, you’ll of course still pay less in interest once the reduced rate comes into effect.

More here on what it could mean for mortgage borrowers from business reporter Emily Stewart:

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Daniel Mulino, a Labor senator and chair of parliament’s Standing Committee on Economics, has just been on Sky News.

Unsurprisingly he has also declined to speak for RBA governor Michelle Bullock, but some interesting replies nevertheless under questioning from Peter Stefanovic.

“Look, I’ve always said that the RBA is an independent organisation and makes its decisions independently and I think that’s very important. 

“What I would say is that when the RBA makes its decision today, it will bear in mind the fact that inflation has come down significantly and is continuing to fall. When we came to government, inflation was very high and rising. It was over eight per cent at its peak. It is now under half that and indeed the headline rate is almost two thirds below its peak and it’s falling. 

“So that’s something which the RBA will definitely take into account along with other factors. So I again would reiterate that the RBA is independent, but a lot of the things that they will take into account are very clear.”

The Labor senator has an eye to an election that must be held before the end of May and say constituents are hurting.

“…we’re all hearing that people have been doing it tough. I mean, I hear that when I’m doorknocking, when I’m at street stalls, I hear that people have been doing it tough and are looking forward to a rate cut, of course. But as I said, I think the RBA needs to make its decisions based upon the trajectory of inflation and making sure that it’s sustainable.”

And don’t worry – we’re not the only people looking forward to the decision and the press conference afterwards.

“Well, no, no. I mean, look, I’m chair of the economics committee, and I’ll be holding three hours of public hearings of Michelle Bullock this Friday, so I’ll certainly be cross-examining her on her decision, but her decision made as an independent RBA.”

It’s okay, we’re going to keep bringing you broader market and economics news – but we’re all pretty focused on the 2:30pm AEDT decision by the RBA.

Last week petrol prices fell marginally in new data from the Australian Institute of Petroleum.

The average price of 1 litre of unleaded fuel was 184.2 cents for the week to Sunday February 16.

That’s down from 184.9 cents for the previous week. The 12-month average is 187.9 cents.

Somewhat unsurprisingly, the prime minister isn’t getting into commentary about a rates decision that hasn’t happened yet.

Anthony Albanese has declined to offer his opinion on whether the Reserve Bank should cut interest rates today, telling ABC Radio Sydney that the bank will make its decision based on “economics, not based on any politics”.

“We respect the independent decision that they will make.

“What our job has been to do is to get inflation down, we’ve done that. It had a six in front of it when we came to office, it’s now down to a headline rate of 2.4%”

The government will be hoping for a rate cut to ease pressure on families ahead of a federal election due to be held before May 17.

Albanese acknowledged the cost of living pressure on Australians, listing a slew of measures Labor has announced to address it, including energy bill relief, fee-free TAFE, and the changes to the Stage 3 tax cuts.

He was then asked whether that relief was flowing through to Australians doing it tough.

“Our job is to govern for the country and to put in place good policies and that is what we’ve done,” he said.

– thanks to Maani Truu for this update.

BHP has reported a 23% decline in its first-half underlying profit, citing lower realised prices for iron ore due to slowing demand from a struggling Chinese property sector.

The world’s largest listed miner posted underlying profit attributable of $5.08 billion for the six months ending December 2024, beating the a consensus estimate of $5.01 billion. It was lower than the $6.57 billion reported last year.

BHP also declared an interim dividend of 50 cents per share.

The ABC’s chief business correspondent Ian Verrender has been through a few interest rate cycles.

He reminds us that the core inflation number (the trimmed mean) has been the primary argument for not cutting rates.

“But if you look at its descent over 2024, it is clear that unless the RBA acts now, it runs the risk of waiting too long,” he writes.

“Unfortunately, while inflation is on the mend, the cost-of-living crisis is nowhere near being solved. For inflation doesn’t measure prices; it simply is a gauge of how quickly prices are rising.

Regardless of who wins at the polls, everything will remain horribly expensive at least until wage rises restore spending power. And that could take years, possibly even until 2030.”

Check it out here.

Of course no-one really knows the answer to that question, but when in doubt, follow the money.

Currently, markets are pricing in around a 90 per cent chance of a 0.25% cut today, according to a couple of different indicators.

Here’s how the ASX’s RBA Rate Indicator (based on movements in a futures contract that can be used as a hedge against cash rate fluctuations) has moved in recent days:

There’s still a bit going on in the Land of the Free, despite the public holiday.

Probably one of the key elements in the coming week is the quarterly report of mega-retailer Walmart, which will give investors some insight into the strength of US consumer spending – as punters face stronger inflation and uncertainty over whether new tariffs will push up prices.

Previous surveys of consumer prices led investors to push back expectations of further interest rate cuts this year.

(Something to note for today’s RBA watch: the US central bank the Fed cut rates after inflation started falling. But then inflation lifted again, more than once).

Consumer spending accounts for more than two-thirds of US economic activity, so it’s key to confidence.

Tariff talk

An interesting data point: since the beginning of the year, nearly 430 companies in the S&P 1500 have either mentioned tariffs or responded to a question about tariffs on earnings calls, or at investor events, according to LSEG data.