Reserve Bank of Australia cuts interest rate by 25 basis points, as expected

Reserve Bank of Australia cut interest rates by 25 basis points to 3.6% today, in line with market expectations, after the latest economic data signaled that core inflation would hold around the middle of the central bank’s 2% to 3% target band that would keep in play scenario of gradual policy easing.

This was the third rate cut this year, and RBA signaled that further policy easing might be needed to meet its inflation and employment targets as economic growth runs out of steam.

RBA Governor Michele Bullock repeated that policymakers would decide moves on a meeting by meeting basis to ensure the bank met its two mandates of low and stable inflation and full employment but refrained to comment whether 3.6% interest rate was restrictive or not.

Bullock added that forecasts suggest that borrowing costs might need to be lowered a bit more, to keep prices stable and boost employment but highlighted that there is still a lot of uncertainty.

Inflation in Australia eased to 2.1% in the second quarter, while core CPI rose to 2.7% – the highest in three years.  hit a fresh three-year low of 2.7%.

On the other hand, labor market is easing from full employment levels, while the unemployment rate rose to 4.3% from 4.1%.

Market bets for another rate cut in September are still low, but with strong expectations that the central bank will deliver two more rate cuts by early 2026, to bring borrowing cost to 3.1%.