RBA Cuts Cash Rate to Two-Year Low of 3.60%

The Reserve Bank of Australia lowered its benchmark cash rate by 25 basis points to 3.60% at its August board meeting, delivering the third reduction this year and pushing the policy rate to its lowest level in more than two years. The move, widely expected by financial markets after a surprise hold in July, aligns with the central bank’s assessment that monetary policy had become overly restrictive as inflation cooled. In its accompanying quarterly Statement on Monetary Policy, the RBA cited a slowdown in price pressures and signs of a softer labour market—headline consumer inflation eased to 2.1% in the June quarter while unemployment edged up to 4.3%—as key reasons for easing. Governor Michele Bullock reiterated that further moves will hinge on incoming data, saying the Board remains "cautious" about the scope for additional stimulus. The central bank sharply downgraded its economic outlook, cutting the 2025 GDP growth projection to 1.7% from 2.1% and trimming its longer-term "speed limit" for the economy to 2.0% from 2.25%. Forecasts for core inflation were little changed, with trimmed-mean CPI seen at 2.6% at end-2025 and drifting to 2.5% by 2027—mid-point of the RBA’s 2%-to-3% target band. Unemployment is expected to remain around 4.3% through 2027. Market pricing embedded in the RBA’s forecasts assumes the cash rate will fall to about 3.4% by end-2025 and reach a trough near 2.9% late in 2026. Investors are currently wagering on as much as 80 basis points of additional easing over the next 12 months, though policymakers stressed that any future cuts will depend on sustained progress toward their inflation and employment objectives.