Australia’s central bank cut its key interest rate by 0.25 percentage points to 3.6% on Tuesday, marking the third reduction this year as inflation slows and economic growth weakens.
The Reserve Bank of Australia lowered the cash rate from 3.85%, following cuts from 4.1% in May and 4.35% in February — the first rate cut since October 2020. This new rate is the lowest since March 2023 and was widely expected due to falling inflation.
Governor Michele Bullock noted that ongoing uncertainties in global trade policies could negatively impact the world economy. However, recent developments suggest extreme outcomes may be avoided, especially with more clarity on U.S. tariffs and other countries’ responses.
The bank aims to keep inflation within a target range of 2% to 3%. Annual inflation in Australia dropped to 2.1% in May from 2.4% in April. The trimmed mean, a key indicator of underlying inflation, fell from 2.8% in April to 2.4%. Inflation has steadily declined from its peak of 7.8% in late 2022.
While a rate cut was anticipated at the July meeting, the board delayed action to review the June quarter inflation data, which showed trimmed mean inflation at 2.7%, down from 2.9% in the previous quarter. The decision to cut rates this time was unanimous.
Treasurer Jim Chalmers welcomed the cuts, saying they provide relief to millions of Australians by putting more money into their pockets amid financial pressures.
The rate cut aims to stimulate the economy, which grew just 0.2% in the first quarter of the year and 1.3% over the past year, after a 0.6% rise in the last quarter of 2023. The bank has been cautious to reduce inflation without causing a recession or significant job losses.
Unemployment rose to 4.3% in June from 4.1% earlier this year, after holding steady since February. It was 4.0% in January.
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