Australia cuts rates

Source: Dukascopy Bank SA
The central bank has lowered the cash rate by 25 basis points to 3.85%. This decision reflects the ongoing decline in inflation and is intended to support economic growth as conditions remain uncertain both globally and domestically. Inflation has eased significantly since its peak in 2022. Trimmed mean inflation has fallen to 2.9%, dropping below 3% for the first time since 2021, while headline inflation sits at 2.4%, comfortably within the 2–3% target range. Forecasts suggest that underlying inflation will remain around the midpoint of that range for much of the forecast period, although headline inflation may temporarily rise due to short-term factors. Uncertainty in the global economy has increased. Recent tariff announcements have caused financial market volatility, and ongoing geopolitical tensions are weighing on the outlook. These global developments could dampen economic activity if businesses and households delay spending while waiting for greater clarity.



Domestically, there are signs of improvement. Real household incomes are rising, private demand is recovering, and financial stress indicators have eased. However, some businesses are struggling to pass on cost increases due to weak demand. Productivity growth has been weak, and unit labour costs remain high. The outlook carries risks. Household consumption may pick up more slowly than expected, potentially leading to weaker growth and labor market outcomes. On the other hand, labour conditions might stay stronger than forecast, supported by leading indicators. There is also uncertainty around how businesses and wages will respond to the current economic environment and how long monetary policy changes will take to impact inflation and growth. In summary, the rate cut aims to balance easing inflation with the need to support a slowing but uncertain economic recovery.
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