Australia Interest Rate

The Reserve Bank of Australia (RBA) cut its cash rate by 25bps to 3.85% at its May meeting, the first rate cut since January and in line with market expectations. The move brought borrowing costs to their lowest in two years, as both headline and underlying inflation had eased into the RBA’s 2–3% target range. The board noted inflation risks are now more balanced, though the outlook remains uncertain, especially due to volatility in global trade policy. The overseas economic backdrop has deteriorated, partly due to higher U.S. tariffs, prompting the RBA to consider a severe downside scenario. It emphasized readiness to respond decisively if global developments materially impact domestic activity or inflation. While Australia’s GDP growth is still expected to pick up, it may do so more gradually amid weaker external demand and slowing consumption. The labor market remains tight, with the unemployment steady at 4.1%. The RBA will closely monitor data and risks to guide future decisions.