Australia’s central bank cut its interest rates by 25 basis points on Tuesday. The benchmark lending rates are now at 3.6%, the lowest since April 2023, which aligned with analysts’ expectations.
The Reserve Bank of Australia acknowledged that the cut was due to a downgrade in the annual economic outlook for the country. It also expects a lower economic growth for the year at 1.7% from its previous estimate of 2.1%.
Australia expects more rate cuts in 2025
The RBA has just cut interest rates for the third time in six months.
Today’s quarter of a percentage point cut brings the cash rate to 3.60 per cent and will make a meaningful difference to millions of mortgage holders around the country.
Under @AustralianLabor, inflation is…
— Jim Chalmers MP (@JEChalmers) August 12, 2025
The country recorded 2.1% inflation in the second quarter, which lies closer to the RBA’s 2%-3% range. Economists and financial markets also widely anticipated Tuesday’s cut after the June quarter CPI showed moderation in inflation.
Reserve Bank governor Michele Bullock said she was waiting for the June quarter inflation data in July before delivering any easing. The data released in July showed underlying inflation moderated to a 3.5-year low of 2.7% in June, giving a near-certain signal for an interest rate cut on Tuesday.
The financial institution noted that inflation had plummeted since the peak in 2022. The RBA board also plans to be attentive to the data and the evolving assessment of risk to guide its decisions. The RBA said it doesn’t see another weaker-than-expected rise in public demand evident in early 2025 through the rest of the year.
Economists forecast that Australia will cut interest rates another 25 basis points to 3.35% by December, but expect it to slow after that. The financial institution had also voted last month 6-3 to leave the interest rate on hold at 3.85%.
According to the RBA’s Statement of Monetary Policy, markets expect a low cash rate of 2.9% by December 2026. The bank’s trimmed mean measure of inflation is also expected to remain at 2.6% for the next two years before dropping to 2.5% by December 2027.
RBA lowers its 2025 economic outlook for growth
Australia’s central bank lowered its economic outlook for growth in 2025. It warned that the economy cannot sustainably grow faster than 2% per year. The bank now expects productivity to grow by just 0.7% per year over the medium term, down from its previous estimates of 1% annual growth. It also warned that weaker growth meant the economy would be smaller and poorer than it otherwise would have been.
The central bank argued that lower productivity growth will eventually weigh on household income, tax revenue, and public spending. It believes that weaker economic growth will cause wages to grow by 3.2% year over year in the long run without fueling inflation.
“That challenge has been long-standing. It is also global, as the Reserve Bank points out. But it is substantial, and it is the government’s primary focus — not just next week, at the roundtable, but indeed for the course of this parliamentary term. So we’ve got a big agenda.”
-Jim Chalmers, Treasurer of Australia
The bank’s warning came just one week before Chalmers’ three-day economic reform summit, including a closed-door meeting of Australia’s government with 24 stakeholders, from businesses and unions. Bullock is also expected to deliver a brief presentation on the first day of the summit, outlining the country’s economic outlook.
The country’s economic outlook comes amid a heightened trade war after Trump imposed a baseline 10% tariff on Australia back in April. The bank also argued that the risk of a trade war has diminished and recent international trade policy developments have had little impact on its economy to date.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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