The Reserve Bank of Australia (RBA) has reduced the cash rate by a quarter of a percentage point to 3.85%, providing relief to mortgage holders as inflation moderates. The decision, the second cut this year, reflects growing confidence that price pressures are easing, though RBA Governor Michele Bullock warned the global economy remains “a complete rollercoaster”.
Bullock noted that inflation is coming down and the jobs market is robust, but the central bank is cautious about the unpredictable global outlook, particularly the impact of US tariffs under Donald Trump. “We have got just a little more comfortable that things are going in the right direction, so we can take our foot off the brake just a little bit,” she said.
The cut is expected to lower mortgage costs, with the major banks announcing they will pass on the full 25-basis-point reduction to standard variable home loan rates. According to Canstar, borrowers with a $750,000 loan will save approximately $114 per month. Treasurer Jim Chalmers described the move as “welcome relief for millions of Australians”.
The RBA board debated a larger half-point cut but ultimately decided against it, citing a strong labour market and easing global tensions. However, the board also modelled a severe “trade war” scenario in which global confidence shocks could push unemployment sharply higher. Under such conditions, the central bank would need to cut rates heavily to stimulate the economy.
Bullock said she does not expect Australia to fall into recession, but the RBA is alert to the possibility if economic conditions deteriorate. The central bank warned that a protracted trade war could leave the economy about $80bn smaller and unemployment at nearly 6%, with almost 300,000 Australians potentially losing their jobs.
