The Reserve Bank of Australia (RBA) on Tuesday cut its key interest rate by 25 basis points, setting it at 3.85%, responding to easing inflation and growing risks from global trade dynamics.
The figure was in line with projections polled by Reuters economists and marked the lowest rate since May 2023.
Although price pressures have kept retreating—with headline inflation dropping to just 2.4% in the first quarter of 2025, within the RBA’s desired range—policymakers cautioned that external uncertainties, particularly unsettled trade policy, could still pose headwinds for growth.
The central bank suggests inflation may temporarily increase in late 2025 as certain government subsidies come to an end, but should stabilize within the RBA’s 2-3% target.
Despite the positive turn in GDP, which registered a 1.3% annualized rise in the fourth quarter of 2024—the first expansion since late 2023—analysts remain wary. The recovery in consumer spending appears weaker than anticipated, raising concerns over future demand and employment prospects.
Some economists see the potential for further interest rate reductions if economic momentum stumbles. Concerns include recent volatility in global markets and trade pressures highlighted by the temporary implementation and suspension of new U.S. tariffs.
Risks tied to both international and domestic developments have led some market participants to predict that the central bank could adjust rates even lower, potentially approaching 3.1% by early 2026 if headwinds persist.
