The Reserve Bank of Australia (RBA) today reduced its official cash rate by 25 basis points, lowering it from 4.10 per cent to 3.85 per cent. This is the second quarter-point cut since February and marks the first time in two years that the cash rate has slipped below 4 per cent.
“At its meeting today, the Board decided to lower the cash rate target by 25 basis points to 3.85 per cent,”
the RBA announced in its post-meeting statement.
This second cut of the year is expected to feed through quickly to lending rates, with Canstar estimating a borrower on a $750,000 mortgage will save around $114 each week.
The RBA cited the continued moderation in inflation as the primary justification for today’s easing. Data for the March quarter showed annual headline inflation at 2.4 per cent—within the RBA’s 2–3 per cent target band—and the trimmed mean measure at 2.9 per cent, dipping below 3 per cent for the first time since 2021.
“Inflation has fallen substantially since its peak in 2022, as higher interest rates have worked to bring aggregate demand and supply closer to balance,” the RBA noted.
“While headline inflation is likely to rise over the coming year as temporary factors unwind, underlying inflation is now expected to remain around the midpoint of the target range through much of the forecast period.”
Despite easing inflation, the Board emphasised that both international and domestic economic uncertainty remain elevated. Trade policy tensions, recent tariff announcements, and geopolitical risks have contributed to volatility in global financial markets. The RBA warned these factors could weigh on global growth and spill over into Australia’s economy
Domestically, however, there are signs of recovery. Real household incomes have improved, private demand is lifting, and some measures of financial stress have eased. Yet, businesses report that weak demand limits their ability to pass on cost increases, and labour market indicators remain mixed. Employment is growing but wage pressures persist alongside sluggish productivity.
“The outlook remains uncertain. While consumption growth is expected to pick up as real incomes rise, recent data suggest the pace may be slower than previously anticipated,”
the Board said.
In ending its statement, the RBA reiterated that price stability and full employment remain its dual mandate. With inflation now squarely in the target band and upside risks abating, the Board judged that a modest easing of monetary conditions was appropriate.
“With inflation expected to remain around target, an easing in monetary policy at this meeting was appropriate,” the RBA concluded.
“This move will make monetary policy somewhat less restrictive, but the Board remains cautious given the heightened uncertainty about demand and supply.
The Board will be attentive to data and evolving risks when making its future decisions.”
Market and lender responses
Markets had fully priced in today’s rate cut, and major banks quickly followed suit. National Australia Bank (NAB) announced it will pass on the full 0.25 per cent reduction to its standard variable mortgage rates effective 30 May 2025, giving borrowers immediate relief on their home loan repayments.
What comes next?
The RBA will closely monitor upcoming consumption, labour market, and inflation data, as well as global economic developments. Further rate adjustments will depend on how these factors evolve and whether risks to the inflation outlook become more balanced or skewed.
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