The Reserve Bank of Australia (RBA) has cut interest rates for the first time since November 2020, but mortgage holders have been warned not to expect more relief. The central bank cut the cash rate by 0.25 per cent today, taking it down to 4.10 per cent.

RBA governor Michele Bullock said inflation had eased more quickly than expected and the board had confidence inflation was "moving sustainably" towards its 2 to 3 per cent target band. Headline inflation dropped to 2.4 per cent in December, while the RBA’s preferred underlying inflation eased to 3.2 per cent.

"The board judges it's time to reduce a little bit of that restrictiveness, but we cannot declare victory on inflation just yet," Bullock said.

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Bullock said today's unanimous decision didn't mean further rate cuts were coming, as the market suggested.

"The board needs more evidence that inflation is continuing to decline before making decisions about the future path of interest rates," she said.

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Markets are expecting about three more interest rate cuts, which Bullock said the board felt was "far too confident".

"I can't say one and done," she said.

"We have done one, we have removed a bit of restrictiveness, we're still restrictive, and we're waiting for more evidence we're getting inflation sustainably back in the band before we're willing to move again."

The RBA board noted "upside risks remain", including unexpectedly strong labour market data.

What does today's announcement mean for mortgage holders?

Today’s cut means an Aussie with an average home loan of $641,416 will save $103 per month on their repayments, or $1,236 per year, provided their bank passes on the full 0.25 per cent rate cut.

Melbourne mortgage holder James Smolski told Yahoo Finance the cut was welcome news for his budget. The 27-year-old electrician purchased his first home with his fiance, Jess, in 2022 for just under $600,000.

Since then, they’ve seen their variable interest rate skyrocket from about 3 to 7 per cent, which has meant they have had to be stricter with their budget and cut out discretionary purchases like eating out.

“It will definitely help. We haven’t decided yet what we will do, whether we will increase the payments so that we’re paying the same or we will save it because we are engaged and saving up for a wedding,” Smolski said.