Australia's key interest rate is now 4.10%.

"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's post-meeting statement reads.

The RBA board's decision was widely anticipated by both markets and economists, as the latest inflation data signaled the 13 rate hikes since May 2022 have been effectively reining in consumer prices.

The Consumer Price Index (CPI) revealed underlying inflation rose 3.2% over the year to December quarter, below the RBA's revised forecast of 3.4%.

The cash rate was last lowered in November 2020 to a historic low of 0.10% in a bid to support the economy during the Covid pandemic.

After a strong post-pandemic rebound, the RBA board enacted a series of rate hikes that brought the benchmark rate to 4.35%.

In its post-meeting announcement, the board said recent datasets released prior to their first meeting this year have given them confidence that inflation is moving sustainably towards the target range.

"There has also been continued subdued growth in private demand and wage pressures have eased," the board noted.

"These factors give the board more confidence that inflation is moving sustainably towards the midpoint of the 2-3% target range."

Major economists from Australia's big four banks all fell into agreement that a cash rate cut would be the right move as the inflation and economy slowed more quickly than the RBA anticipated.

As of 17 February, ASX traders were betting a 90% chance that the RBA would deliver a rate cut.

However, some economists argued today's decision to lower the cash rate might be too early considering the labour market remains tight and discretionary spending increased in January.

CommBank economist Stephen Wu earlier said that a February cut would necessarily mean the RBA would pre-commit to further easing.

"A rate cut in February would simply start the process of removing the restrictiveness of monetary policy," Mr Wu said.

"If the RBA board cut the cash rate as we expect, we do not think the communication will pre‑commit to further easing. Instead, the RBA Board and the Governor will stress continued data dependence."

Indeed, the rate-setting committee affirmed that it would continue to rely upon data and "the evolving assessment of risks" to guide its decision.

The board said that it would keep the monetary policy restrictive after this rate reduction.

The Statement of Monetary Policy released alongside today's announcement forecasts underlying inflation to fall to 2.7% on an annual basis by mid-2025 and remain there until at least mid-2027.

"The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range," the board 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."

Tuesday's decision is good news for many beleaguered borrowers holding out hopes for interest rates to finally be lowered.

However, a new ING research revealed that 68% of Australian mortgage holders plan to maintain their current repayment amounts, even if the RBA reduces interest rates.

More than half of those who don't plan to lower their repayments expect to pay down their principal, while four in ten plan to pour savings into their offset accounts.

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