The Reserve Bank of Australia’s Monetary Policy Board has decided to lower the cash rate target by 25 basis points to 3.60 per cent, following its latest meeting.
The Board cited continued moderation in inflation as a key reason for the decision. Inflation has fallen significantly since its peak in 2022, attributed to higher interest rates helping bring aggregate demand and potential supply closer together. In the June quarter, trimmed mean inflation over the year fell to 2.7 per cent, which was broadly as expected in May. Headline inflation was reported at 2.1 per cent, also matching forecasts.
Updated staff projections for August indicate that underlying inflation is likely to continue declining toward the midpoint of the central bank’s 2–3 per cent range, with an assumption that monetary policy will be eased gradually.
The global economic outlook remains uncertain. While there is now greater clarity regarding US tariffs and other countries’ policy responses—reducing chances of more extreme scenarios—trade policy developments are still anticipated to negatively affect global economic activity. The Board noted that “there remains a risk that households and firms delay expenditure pending still greater clarity on the outlook.” Forecasts assume these effects will temporarily weigh on Australian activity and inflation.
Within Australia, private demand appears to be recovering gradually and real household incomes have increased while some financial conditions have eased. Labour market indicators suggest conditions remain somewhat tight but have softened recently; unemployment rose to 4.3 per cent in June and averaged 4.2 per cent during the quarter, aligning with previous forecasts.
Business surveys indicate labour availability continues to constrain employers across sectors despite easing wage growth from earlier peaks and ongoing high unit labour costs due to weak productivity growth.
The statement highlighted uncertainties stemming from both domestic and international factors affecting future economic activity and inflation outcomes. It said: “There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments.” Recovery in household consumption is expected as real incomes rise, but some businesses report difficulty passing on cost increases amid weak demand—a factor that could slow consumption growth further than anticipated or alternatively see stronger-than-expected results if households spend more as their incomes improve.
Uncertainties also remain around how quickly recent monetary policy changes will take effect, particularly regarding pricing decisions by firms, wage responses relative to demand-supply balances, labour market trends, and persistent low productivity growth.
Emphasizing its mandate priorities, the Board stated: “With underlying inflation continuing to decline back towards the midpoint of the 2–3 per cent range and labour market conditions easing slightly, as expected, the Board judged that a further easing of monetary policy was appropriate.” This marks a cumulative reduction of 75 basis points in the cash rate since early this year.
Despite lowering rates again today, policymakers expressed caution given elevated uncertainty about aggregate demand and supply prospects: “It noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia.”
“The Board will be attentive to the data and the evolving assessment of risks to guide its decisions,” it said further. “In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.”
Today’s decision was unanimous among members.