The Reserve Bank of Australia has lowered the official cash rate by 0.25 of a percentage point to 3.60 per cent, the lowest in more than two years and the third cut of 2025 after moves in February and May. The decision, announced at 2:30pm on 12 August, follows a surprise pause in July when markets had expected a reduction. The bank held back then, waiting for updated inflation figures.
The cut was backed unanimously by the RBA’s monetary policy board, a change from the split vote a month earlier. A Reuters poll in early August had pointed to a 25-basis-point easing to address cooling inflation and a labour market showing early signs of slack.
Inflation is tracking back toward the RBA’s 2 to 3 per cent target range. The trimmed mean fell to 2.7 per cent in the June quarter, down from 2.9 per cent in March, according to the ABS. Headline inflation eased to 2.1 per cent annually, the lowest since early 2020. Temporary government rebates on electricity and childcare have helped, though the RBA expects inflation to edge above 3 per cent later in the year as those supports unwind.
Unemployment rose to 4.3 per cent in June from 4.1 per cent in May, in line with RBA forecasts, while jobs growth stalled at just 2,000 positions for the month. Dr Isaac Gross of Monash Business School said the July hesitation was about waiting for this inflation data. “The RBA was gun shy in July as it awaited an update of the most recent set of inflation statistics. However, with underlying inflation falling to 2.7 per cent, the RBA has felt comfortable lowering the cash rate by 25 basis points.” He expects one or two more cuts before the end of the year if inflation continues to moderate.
Treasurer Jim Chalmers called the move “very welcome relief for millions of Australians” that “will put more money in the pockets of people under pressure.” He said a household with a $700,000 mortgage would save $109 a month from this cut, or around $1,300 a year, with the three cuts this year amounting to roughly $4,000 in annual savings.
The Treasurer’s wider claims—about job creation, wages growth and debt reduction—sit alongside weaker productivity numbers. Growth has slipped from 1 per cent to 0.7 per cent, and GDP expanded by just 0.2 per cent in the March quarter. The RBA also downgraded its productivity growth outlook, warning this could limit scope for future cuts.
Earlier reductions in February and May have eased borrowing costs and may have supported household spending, although savings remain high at $1.62 trillion, pointing to caution among consumers. Globally, the RBA’s move follows the European Central Bank’s June cut to 2 per cent and the US Federal Reserve’s pause after earlier reductions. The Australian central bank cited uncertainty from international factors, including US trade policy and potential impacts on exports.
Markets expect at least one more cut by December and possibly another in early 2026. Canstar estimates a $600,000 loan saves about $90 a month from each 25-basis-point cut, offering real but modest breathing room for borrowers.
The RBA’s statement stressed that while inflation has dropped from a late-2022 peak of 7.8 per cent, the bank remains alert to global risks and domestic structural challenges. With policy firmly data-driven, the path ahead will depend on how growth, employment and prices evolve over coming months.
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