The Reserve Bank of Australia has cut the cash rate to 3.85 per cent, delivering the second reduction this year and offering mortgage holders a fleeting sense of relief. With inflation softening and pressure mounting from weakening global demand, the move had been priced in by markets. What’s less certain is whether it changes the mood or just buys time.
Treasurer Jim Chalmers was quick to welcome the development, calling it “very welcome relief for millions of Australians.” Speaking after the decision, Chalmers said, “We are really pleased to see more help for hard-working families with a mortgage. It reflects the substantial and sustained progress we’ve made together on inflation, and it recognises the uncertain global environment.”
He added, “Today’s cut doesn’t mean the job is finished, but it will help.”
The average borrower with a $600,000 loan will see about $90 shaved off monthly repayments. Households with a $500,000 mortgage will save $79 a month, or $948 annually, according to Treasury estimates. When combined with the February cut, the same family pockets nearly $1,900 per year—just enough to ease grocery or fuel stress, but hardly enough to trigger a spending boom.
The cut reflects an RBA increasingly worried about subdued consumption and faltering business investment. The Board’s statement was frank: “This move will make monetary policy somewhat less restrictive. It nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply.”
That demand is under strain is no secret. Domestic consumption has slowed, wage growth—while real in aggregate—remains patchy, and business confidence has slipped amid global trade friction. The RBA has downgraded its 2025 GDP growth forecast from 2.4 to 2.1 per cent. It has also raised its unemployment expectations, flagging a jobless rate that may drift above 4.5 per cent by year’s end.
Meanwhile, inflation now sits within the RBA’s 2–3 per cent target band for both headline and underlying measures—the first time this has occurred in nearly four years. The Trimmed Mean CPI grew by 2.9 per cent year-on-year, giving the Board some breathing space. But Governor Michele Bullock has made clear that the easing in prices does not equate to complacency.
Markets are betting on up to 85 basis points of additional cuts over the next 12 months, with futures pricing suggesting a cash rate of 3.25 per cent by early 2026. However, that optimism may be misplaced if Australia’s inflation track proves stickier than expected—or if energy prices rebound.
Chalmers pointed to the broader context, noting that “headline and underlying inflation are now both in the RBA’s target band for the first time in almost four years… and this is the first time since records began that the unemployment rate has been in the low 4s and inflation is on target at the same time.”
He also sought to draw a contrast with the economic conditions three years ago, saying, “When we came to office… inflation and interest rates were rising. Now they’re falling.”
But while the narrative from Canberra leans on words like “soft landing” and “progress,” private sector economists remain cautious. Some have questioned whether housing affordability could deteriorate further, as lower borrowing costs reignite buyer activity in undersupplied markets. The RBA, too, acknowledged the risk: lowering rates may stimulate demand more than supply can absorb, particularly in property markets already grappling with rental shortages and sluggish construction.
Beyond housing, the risks remain global. Weakening demand from China, slowing consumer spending in the United States, and ongoing trade realignments have placed Australia’s export outlook on uneven footing. Add in concerns over productivity stagnation and a labour market increasingly reliant on part-time or casual roles, and the macro picture begins to look less assured.
Still, Chalmers insisted that the overall trajectory was holding. “Our economic strategy has been about getting on top of inflation without mass job losses or growth going backwards and that’s what we’re seeing in our economy.”
With real wages inching up, the dollar holding firm, and retail sales sluggish but not in reverse, the RBA’s move feels more like managing fragility than reigniting momentum. Whether another 25 or 50 basis points of easing will translate into stronger productivity, investment, or confidence is still an open question.
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