RBA lends the economy some more support in uncertain times in Australia

As was widely expected, the RBA cut the cash rate by 25 basis points to 3.85% at the May meeting. The impact of tariffs and related uncertainty will make for a weaker global economy in 2025. This has removed some of the upside risk from the Australian inflation outlook and given the RBA enough scope to cut rates.

The Bank continues to strike a cautious tone about further rate cuts, noting that weak productivity growth and the tight labour market continue to put upward pressure on labour costs. Nevertheless, we view the rates as still being in slightly restrictive territory after this cut and expect to see two more rate cuts in the second half of 2025.

Chart 1: Cash rate is now back down to 3.85%