The Reserve Bank of Australia has lowered the cash rate by 25 basis points to 3.60 per cent at the August meeting. This decision marks the third cut of 2025 and brings the total monetary easing in the present calendar year to 75 basis points, the lowest stance since early 2023.
| Month | Cash Rate (%) |
| Jan 2025 | 4.35 |
| Mar 2025 | 4.10 |
| May 2025 | 3.85 |
| Aug 2025 | 3.60 |
This reflects the 0.25% cut in August 2025 and the total 0.75% reduction over the year.
Inflation Returns to Target Band
Price pressures have further receded. For the June quarter, the trimmed mean measure recorded an annualised rate of 2.7 per cent, while the headline measure printed at 2.1 per cent. The Board observes that inflation has receded substantially from the 2022 peak and is now expected to stabilise near the midpoint of the 2 to 3 per cent target, assuming the cash rate follows a modest downward trajectory.
Labour Market Data Exhibits Cooler Signals
The labour market has softened relative to the previous year. The unemployment rate edged up to 4.3 per cent in June and averaged 4.2 per cent across the quarter. Reports from businesses indicate a reduction in acute staff shortages, and wage growth has decelerated from earlier peaks.
Rationale for the Board’s Timely Action
The Board concluded that core inflation is continuing to decelerate and that a modest reduction in the cash rate is warranted at this juncture.
The decision reached in August came after a hold in July and carried unanimous support. Cumulatively since February, monetary policy has now been eased by a total of 75 basis points. The Bank also highlighted ongoing uncertainties linked to international trade policies and a recent moderation in domestic expenditure as justifications for a cautious stance.
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The Bank has indicated a preference for a slow and measured path of further accommodation, while emphasising the need to monitor incoming data on price dynamics, consumer and business demand, and the labour market. Forecasts remain open, suggesting a further reduction could be warranted later in the year provided inflation remains subdued and the need for stimulus persists; nevertheless, no predetermined timeline has been established.
Market Response
The financial markets had priced in the outcome. The Australian dollar weakened in the immediate aftermath of the decision, while equity indices reached record highs across a broad spectrum of sectors. Several of the largest domestic lenders indicated they would translate the 25 basis point reduction into lower rates for borrowers on variable-rate mortgages in the weeks ahead.
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The Bank continues to contend with heightened uncertainty both domestically and internationally. Global growth patterns remain uneven, and evolving trade policies could exert a dampening effect on activity.
In Australia, real household incomes are rising, and certain credit conditions have eased modestly, yet the Bank requires clearer evidence on consumption, employment, and corporate pricing behaviour before relaxing monetary policy further. This is why adjustments are proceeding incrementally rather than through broad reductions. (Reserve Bank of Australia)
A reduced cash rate typically lowers borrowing expenses, which can stimulate housing markets gradually. Such action may also bolster capital spending by firms and relieve financial strain on households.
Reduced rates can create beneficial pathways for borrowers, including lower repayments, opportunities to reassess loan structures, and simpler access to home equity for renovations or investments. Acting promptly can provide an advantage before heightened competition drives demand. For buyers and investors moving within these market conditions, BeSmart Finance can provide the best mortgage broking services to make the loan process easier and increase your chances of success.
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