The RBA August Rate Cut saw the Board lower the cash rate target by 25 basis points to 3.60 per cent. The decision follows continued moderation in inflation and a gradual easing in labour market conditions, with the Board aiming to balance price stability and full employment.
Reasons for the rate cut
- Inflation has fallen substantially since the peak in 2022 due to higher interest rates bringing demand and supply closer to balance.
- Trimmed mean inflation fell to 2.7 per cent in the June quarter, as expected.
- Headline inflation was 2.1 per cent, influenced by temporary cost-of-living relief measures.
- Updated forecasts suggest underlying inflation will continue to moderate to the midpoint of the 2–3 per cent target range.
- Unanimous decision
Global economic outlook
- Uncertainty in the global economy remains high, though extreme trade policy outcomes appear less likely.
- US tariff changes and policy responses abroad still pose risks to global economic activity.
- Households and firms may delay spending until more clarity emerges, which could weigh on domestic growth and inflation.
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Domestic economic conditions
- Private demand has been recovering gradually, supported by rising real household incomes and some easing in financial conditions.
- Labour market conditions remain slightly tight but have eased in recent months.
- Unemployment rose to 4.3 per cent in June, consistent with forecasts.
- Wage growth has eased from its peak, but productivity growth remains weak, keeping unit labour costs high.
Risks to the outlook
- Household consumption growth could be slower than expected, leading to weaker demand and employment.
- Alternatively, rising real incomes and wealth may boost consumption more than forecast.
- Labour market outcomes may exceed expectations, supported by leading indicators.
- Lags in the effects of earlier rate cuts and uncertain pricing and wage responses add to the unpredictability.
Policy stance and priorities
- Underlying inflation is declining toward the midpoint of the target range.
- Labour market conditions are easing slightly but remain supportive of employment.
- The cash rate has now fallen by 75 basis points since the start of the year.
- The RBA remains cautious and ready to adjust policy quickly in response to significant global or domestic changes.
- The Board will monitor economic data closely to guide future decisions, with a focus on price stability and full employment.
Future outlook
- Further gradual easing in interest rates is possible if inflation continues trending toward the midpoint of the target range.
- Global trade developments and US policy decisions will remain key risk factors for Australia’s growth.
- Domestic spending trends will be critical, with household confidence and income growth likely to shape demand in the coming months.
- Businesses may see improved borrowing conditions, but persistent productivity challenges could limit long-term gains.
- The RBA will maintain flexibility in its policy approach, ready to act swiftly if conditions change materially.