Australia’s central bank said on Wednesday that monetary policy was restrictive with the current cash rate causing financial pain for many households, but it could not rule out further tightening if necessary to tame inflation.
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Australia’s central bank cut its policy rate by 25 basis points on Tuesday, as low inflation allows the country room to loosen its monetary policy and boost its slowing economy.
The country’s benchmark rates are now at to 3.6%, their lowest since April 2023, and in line with expectations of economists polled by Reuters.
The Reserve Bank of Australia said that inflation had dropped “substantially” since the peak in 2022, with steeper interest rates bringing aggregate demand and potential supply “closer towards balance.”
Inflation in Australia came in at 2.1% in the second quarter, its lowest since March 2021 and near the end of the RBA’s 2%-3% range.
Tuesday’s rate cut comes amid a drastically reshaped trade environment as U.S. tariffs have come into effect, as well as a less than expected growth in the first quarter.
Australia was hit with the baseline 10% tariff by U.S. President Donald Trump, with the country’s trade minister reportedly hailing that as a “vindication” for the government’s negotiations, adding that the country had conducted diplomacy with the U.S. in a “cool and calm” way.
The country’s economy grew 1.3% year on year in the first quarter, lower than the estimated 1.5% growth in a Reuters poll. On a quarter-on-quarter basis, the economy expanded 0.2%, undershooting expectations for a 0.4% growth.
Katherine Keenan, ABS head of national accounts, attributed the soft growth to shrinking public spending and weakened consumer demand and exports.
Analysts at the Commonwealth Bank of Australia said in a Aug. 7 note that they expected a rate cut to be “locked in” for August, saying that data had evolved as expected after the RBA’s unexpected hold in July.
The CBA analysts are also forecasting an additional cut for November, and also see the possibility of one more in “early 2026.”
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