RBA Cuts Cash Rate Amid Decelerating Inflation, Cautious Outlook

On 20 May 2025, Reserve Bank of Australia (RBA) lowered the cash rate by 25 basis points to 3.85%. This is in line with RBA's assumption that inflation is decelerating, as trimmed mean annual inflation rate fell to 2.9% and headline inflation fell to 2.4%. Despite the healthy labor market, the RBA is cautious about risks to the economy's outlook, such as declining household consumption and international events. The monetary policy of the RBA is focused on price stability and full employment amid foreign uncertainty. The Board observes that inflation risks are no longer skewed to the downside and require less cautious policy response. But they are data-sensitive and bound to respond sharply to any material changes in the Australian economy.

Markets and economists had broadly expected the rate cut, but RBA Governor Michele Bullock's subsequent comments and updated economic projections will give greater clarity to the central bank's thinking. Look for whether there is any suggestion of future rate action, particularly in response to global risks like US tariffs and the eventual impact on Australia's economy.