MELBOURNE, Australia: Australia's central bank has cut its benchmark interest rate for the first time in more than three years, signaling confidence that inflation is easing.

The Reserve Bank of Australia (RBA) reduced the cash rate from 4.35 percent to 4.1 percent at its first board meeting of the year, citing a significant drop in inflation since its 2022 peak. The move was widely expected after the December quarter saw inflation rise by just 0.2 percent, bringing the annual rate to 2.4 percent.

"Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance," the board said in a statement.

While some central banks around the world have aggressively cut rates, RBA Governor Michele Bullock emphasized that Australia has taken a different approach. "Our policy rate was not raised as much as many countries overseas. We judged that while inflation expectations remained anchored, we could take a bit longer to bring inflation back to the target band, but we could keep unemployment lower," she said.

Australia's job market remains strong, with unemployment at 4 percent in December, up slightly from 3.9 percent in November.

The decision provides a political boost for Prime Minister Anthony Albanese's Labor government, which faces re-election by May. Treasurer Jim Chalmers welcomed the rate cut, calling it "the rate relief Australians need and deserve."

"This won't solve every problem in our economy or in household budgets, but it will help," Chalmers said. He also noted that Australia had managed to curb inflation without experiencing the economic downturn and high unemployment seen in some other countries.

Since May 2022, the RBA has raised rates 12 times, with the first hike coming in the final days of the previous government's term. The cash rate had remained at 4.35 percent since November 2023, the highest level since 2011.

Looking ahead, Bullock warned against assuming further rate cuts were inevitable, highlighting global uncertainties, including the potential economic impact of U.S. tariff increases.

"The tariff threats and what's going on overseas is very uncertain and probably even worse, it's unpredictable," she said.