Reserve Bank of Australia lowers interest rate by 25 basis points in line with expectations

The Reserve Bank of Australia (RBA) cut interest rates by 25 basis points to 3.6% today, matching market expectations, after recent economic data suggested core inflation would remain near the midpoint of its 2%–3% target range, supporting the case for gradual policy easing.

This marks the third rate cut in 2025, with the RBA indicating that further easing may be needed to achieve its inflation and employment goals as economic growth shows signs of slowing.

Governor Michele Bullock reiterated that decisions will continue to be made on a meeting-by-meeting basis to ensure the bank meets its dual mandate of low, stable inflation and full employment, but declined to say whether the current rate is restrictive. She noted that forecasts point to the possibility of slightly lower borrowing costs to stabilize prices and support jobs, though uncertainty remains high.

Australia’s headline inflation eased to 2.1% in Q2, while core CPI climbed to 2.7%—its highest in three years. Meanwhile, labor market conditions have softened, with the unemployment rate rising to 4.3% from 4.1%.

Markets currently see limited chance of another rate cut in September, but expectations are strong for two additional cuts by early 2026, which would bring the cash rate down to around 3.1%.