RBA makes third cash rate call for 2025 

After cutting interest rates for the first time since 2020 just four months ago, the RBA has yet again decided to cut cash rates.

After holding the cash rate in its April 2025 meeting, the board of the Reserve Bank of Australia has decided to cut the cash rate by 25 basis points from 4.1 per cent to 3.85 per cent.

In a statement, the board said: “Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.

“Data on inflation for the March quarter provided further evidence that inflation continues to ease. At 2.9 per cent, annual trimmed mean inflation was below 3 per cent for the first time since 2021 and headline inflation, at 2.4 per cent, remained within the target band of 2–3 per cent.”

“Staff forecasts released today project that while headline inflation is likely to rise over the coming year to around the top of the band as temporary factors unwind, underlying inflation is now expected to be around the midpoint of the 2–3 per cent range throughout much of the forecast period.”

However, the board continued, uncertainty about the outlook abroad also remains significant.

“Uncertainty in the world economy has increased over the past three months, and volatility in financial markets rose sharply for a time. 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.

“Geopolitical uncertainties also remain pronounced. These developments are expected to have an adverse effect on global economic activity, particularly if households and firms delay expenditure pending greater clarity on the outlook. This has also contributed to a weaker outlook for growth, employment and inflation in Australia.

“That said, world trade policy is changing rapidly, thereby making the central forecasts subject to considerable uncertainty. Setting aside overseas developments, private domestic demand appears to have been recovering, real household incomes have picked up and there has been an easing in some measures of financial stress,” it said.

“However, businesses in some sectors continue to report that weakness in demand makes it difficult to pass on cost increases to final prices. At the same time, a range of indicators suggests that labour market conditions remain tight. Employment is continuing to grow, measures of labour underutilisation are at relatively low rates, and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers.

“Looking through quarterly volatility, wages growth has softened over the past year or so, but productivity growth has not picked up, and growth in unit labour costs remains high.”