Cash rate reduced to 3.6% amid softer economic outlook
The Reserve Bank of Australia (RBA) lowered its benchmark lending rate by 25 basis points on Tuesday, bringing the cash rate to 3.6%, the lowest since April 2023. The decision matched economists’ expectations and came alongside a reduced 2025 growth forecast of 1.7%, down from 2.1%. Policymakers cited weaker-than-expected public demand early in the year that is unlikely to recover in the months ahead.
The central bank said inflation had fallen “substantially” from its 2022 peak, with tighter policy bringing demand and supply into better balance. Australia’s S&P/ASX 200 rose about 0.3% after the decision, while the Australian dollar slipped 0.15% to 0.6501 against the U.S. dollar.
Growth slowdown reflects weaker demand
Australia’s GDP grew 1.3% year-on-year in the first quarter, missing the 1.5% forecast, and expanded only 0.2% quarter-on-quarter. The Australian Bureau of Statistics attributed the weakness to shrinking public spending, softer consumer demand, and weaker exports. The RBA noted that slower productivity growth, rather than trade disruptions, is the main driver behind the lower outlook.
Private forecasts suggest further easing ahead. Commonwealth Bank of Australia expects another rate cut in November, with a possible follow-up in early 2026. Capital Economics projects the cash rate could fall to 2.85% by mid-2026 if inflation continues to trend lower.
Inflation near target but trade risks remain
Second-quarter inflation came in at 2.1%, the lowest since March 2021 and close to the RBA’s 2–3% target range. Policymakers said recent U.S. tariff changes have had minimal impact so far, with Australia facing a baseline 10% rate. The central bank warned, however, that global trade disruptions remain a risk that could affect growth and confidence.
The RBA emphasized its readiness to adjust policy if economic conditions shift, balancing the goal of maintaining disinflation with the need to support a slowing economy.
