Reserve Bank of Australia has cut the cash rate to 3.6 per cent. Photo: Michelle Kroll.
The Reserve Bank of Australia has cut the official interest rate by a quarter of a percentage point, bringing it down from 3.85 per cent to 3.6 per cent.
It is the third cut this calendar year and could save the average homeowner another $75 a month off their loan repayments if lenders pass on the full cut to mortgage holders.
The unanimous decision by the RBA’s monetary policy board follows widespread speculation that rate relief would be delivered this month after the cash rate was kept on hold last month.
The central bank said inflation was back within its 2 to 3 per cent target range and the unemployment rate had increased marginally.
RBA Governor Michele Bullock has said households were still “feeling the pain” of higher costs from rising inflation between 2022 and 2024.
“The board’s strategy … has been to bring inflation down while avoiding a sharp rise in unemployment because we didn’t take rates as high as some other countries,” she said.
“It may be that we don’t need to reduce rates as much either, as demand and potential supply in the economy get closer to balance and inflationary pressures ease.
“The board’s discussing how we can sustain this.”
The Australian economy had suffered a weak start to the year, with cost-of-living pressures and the chaos over US President Donald Trump’s tariffs adding to the uncertainty.
In a statement explaining its decision, the RBA said inflation had fallen substantially since the peak in 2022, as higher interest rates had been working to bring aggregate demand and potential supply closer towards balance.
“In the June quarter, trimmed mean inflation over the year fell to 2.7 per cent, broadly as expected in May,” it said.
“Headline inflation, which has partly been affected by temporary cost-of-living relief measures, was 2.1 per cent, also as forecast.
“Uncertainty in the world economy remains elevated. There is a little more clarity on the scope and scale of US tariffs and policy responses in other countries, suggesting that more extreme outcomes are likely to be avoided.”
Domestically, the bank said private demand appears to have been recovering gradually, real household incomes have picked up, and some measures of financial conditions have eased.
Various indicators suggest that labour market conditions remain a little tight, although they have eased further in recent months.
Treasurer Jim Chalmers said the interest rate cut was “very welcome” for millions of Australians.
“It will put more money in the pockets of people who are under pressure,” he said.
“This welcome decision wouldn’t be possible without the progress that Australians have made together on inflation.
“Getting inflation down from those very high peaks in the year that we came to office, down to well within the Reserve Bank’s target range, has given the independent Reserve Bank the confidence to cut interest rates three times this year.”
The Treasurer noted that the cut marks the first time in almost two decades that Australia has had three interest rate cuts in a calendar year.
And he gave the Federal Government a slap on the back for its economic credentials.
But he stressed there were still many challenges ahead for the nation.
“We do have a productivity challenge in our economy. That challenge has been long-standing,” he said.
“It is also global, as the Reserve Bank points out. But it is substantial, and it is the government’s primary focus, not just next week, at the roundtable, but indeed for the course of this parliamentary term.
“This interest rate decision puts us in good stead. The progress we’ve made together puts us in good stead to deal with the uncertainty that surrounds us in the world, and to deal with the big economic challenges which confront us.”
But shadow treasurer Ted O’Brien says the RBA’s cut is only slight relief for mortgage holders.
It shows, he said, that the central bank does not support Labor’s management of the Australian economy.
“This sends a very powerful message to the people of Australia that the Albanese government does not have the support of the RBA when it comes to managing the economy,” Mr O’Brien said.
“Australians are feeling poorer for a reason. They are becoming poorer and the news from the RBA today says they are only going to be feeling poorer still.
“Living standards will continue to be a problem in Australia as the cost of everything goes up.
“Every day Australians are becoming poorer and poorer under this government, and the RBA’s news today gives them no relief.
“If anything, it’s a firm vote of no confidence.”
