Australia’s central bank, the Reserve Bank of Australia (RBA), lowered its official cash rate by 25 basis points to 3.85%, marking the lowest level since May 2023. This decision reflects a cautious response to a deteriorating global economic outlook and easing inflation pressures domestically.
The RBA’s two-day policy meeting concluded with the board noting that inflation risks have diminished and that international developments, including recent U.S. tariffs, are expected to weigh on the Australian economy.
Headline consumer price inflation remained steady at 2.4% in Q1 2025, while core inflation, measured by the trimmed mean, slowed to 2.9%, returning to the RBA’s target range of 2% to 3% for the first time since late 2021.
Despite the rate cut, the RBA maintained a cautious stance on further easing due to ongoing uncertainties. The bank highlighted that weak productivity growth and a tight labor market continue to exert upward pressure on wages, which could pose inflationary risks. The unemployment rate held steady at 4.1%, and wage growth in Q1 was influenced by government pay rises rather than broad-based increases.
Market reaction included a 0.4% decline in the Australian dollar to around $0.6430 and a rise in three-year bond futures. Market swaps indicate expectations of a total easing of approximately 57 basis points by year-end.
The RBA’s Statement on Monetary Policy emphasized that global trade tensions, particularly U.S. tariffs, will likely suppress global growth and have disinflationary effects on Australia. The bank projects lower inflation and higher unemployment as consequences of these international developments, even assuming further rate cuts as priced by markets.
Commonwealth Bank of Australia (CBA) responded promptly by announcing a 25 basis points cut to its home loan variable rates effective May 30, 2025, providing monthly savings of about AUD 80 for borrowers with average loan sizes of AUD 500,000. This follows a previous rate cut in February, cumulatively easing financial pressure on mortgage holders.
Learn more:
