The RBA board said inflation rates have “significantly dropped” since its peak in 2022, and high interest rates have helped supply and demand to provide better consistency.
The Reserve Bank of Australia recorded its second cut in 2025, cutting its official cash rate by 25 basis points to 3.85%.
The move, in line with market expectations, follows the cuts in February, with the first cut since November 2020 being held at 4.35% for more than a year.
In a monetary policy statement, the RBA board said that inflation rates have “deeply decreased” since its peak in 2022, and high interest rates have helped supply and demand to provide better consistency.
“Data on inflation for the March quarter provided further evidence that inflation continues to be mitigated: 2.9%, with an average annual inflation trimmed below 3% for the first time since 2021.
Although temporary factors are expected to lead to a minor increase in headline inflation, RBAs are currently hovering to the midpoint of target range for most of the forecast period.
The committee warns of volatility despite interest rate easing
However, the board struck a cautious tone, warning of growing global uncertainty and volatility in financial markets over the past three months.
The statement added that while the recent tariff announcements have prompted market rebounds, “there is still considerable uncertainty about the final scope of tariffs and policy responses in other countries.”
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Geopolitical tensions also heavy on the global outlook.
“These developments are expected to have a negative impact on global economic activity, especially when households and businesses make clearer outlook and delay spending,” they said.
The board acknowledged that these global factors weaken Australia’s growth, employment and inflation forecasts, adding that rapidly evolving trade policies will make economic forecasts more uncertain.
Domestic demand is freed, but challenges remain
Domestic, the RBA observed signs of a recovery in private demand. Actual household income has improved and indicators of financial stress have been eased.
However, companies in some industries struggle to take over the rising costs due to low demand.
The labor market situation remains severe, with employment growth and irregular shortages remaining low. Employers in several sectors continue to cite labor shortages as a constraint.
“More broadly speaking, there is uncertainty about delays in the impact of monetary policy and how firms’ pricing and wages will respond to weak demand environment and productivity outcomes, but the labour market situation remains harsh,” the board said.
They concluded that inflation risk is more balanced, but warn that uncertainty remains high in both supply and demand.
“Nevertheless, it is cautious about the outlook, especially given the increasing levels of uncertainty regarding both total and supply and the like.”
ANZ is seeing more cuts
The latest cuts follow swept trade measures introduced by former US President Donald Trump, who imposed universal mutual tariffs, including a 10% tax on Australian imports.
In response, ANZ Bank in April had forecast three interest rate cuts this year.
“Given the potential for tariffs to have on global growth and the already obvious impact in the market, the ANZ survey hopes that the RBA will reduce its official cash rates for May, July and August by 25 basis points at each meeting.
ANZ economists said the tariff announcement is still absorbed and will shed light on potential negotiations and measures over the coming weeks.
“At a macro level, the US may have sector impacts from tariffs, but it will not buy large amounts of Australian exports. The big risks to the Australian economy are the major risks surrounding global growth and the impact on domestic consumers and business trust,” they added.
