Interest rates: RBA cuts cash rate target to 3.85%
The Reserve Bank of Australia (RBA) has moved to cut interest rates, in a move that was widely tipped in the lead up to this afternoon’s meeting.
The bank has dropped the official cash rate target by 25 basis points, from 4.1% to 3.85%, to deliver the second such rate cut in this easing cycle.
The RBA’s Monetary Policy Board on Tuesday said the cut was appropriate, given moderating inflation.
Its preferred trimmed mean inflation rate sat at 2.9% in the most recent March quarter reading, within the central bank’s 2-3% target range.
But the board was quick to note the economic outlook remains uncertain — especially due to US President Donald Trump’s tariff regime.
“While recent announcements on tariffs have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries,” the board said.
The RBA held rates in April, after February’s decision to drop rates from 4.35% to 4.1%. The last time the official cash rate target was below 4% was in mid-2023.
Today’s decision was in line with market expectations, according to Oliver Hume chief economist Matt Bell.
“Economists and financial markets were nearly as unanimous in their forecast for the cut at this meeting as they were for a hold at the last meeting, although the outlook for the remainder of 2025 has shifted appreciably over the first few weeks of May,” Bell said in a statement provided to SmartCompany.
Global economic uncertainty has played a key role, according to Bell, who specifically highlighted the “Liberation Day” tariffs.
“Even if the originally announced policies are only partially implemented, as now seems likely, they are probably disinflationary for the world outside the US,” he said.
“For the RBA, this obviously trumped (pun intended) the risk that a still-tight labour market would keep pressure on domestic inflation.”
Bell said the market is now pricing in two more rate cuts by the end of the year, which is down from the three or four cuts that were expected as of the end of April.
“Since then, we’ve had a slightly disappointing March CPI, a stronger than expected April Labour Force and slightly stronger than expected March quarter wages growth, as well as some deals and backtracking of the initial tariff announcements,” he added.
Bell said the economy’s “move into a more certain rate-cutting environment” has led housing prices to rise for three consecutive months, from February to April, alongside continued upward movement in land prices.
This trend is expected to continue, he added.
“We expect market forecasts of property price growth to be revised up from the moderate growth rates forecast in late 2024.”
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