The Reserve Bank of Australia has responded to the continued decline in inflation by cutting the official cash rate to 3.6% at its August meeting — the third rate cut in 2025.
Rates are now back to where they were in April 2023, down from their peak of 4.35% earlier this year.
Today’s decision to cut rates was unanimous among the nine-member Board. This marks the second month the RBA has disclosed individual voting outcomes. Last month, when the RBA surprised markets, the vote was six in favour and three against.
There are now only three meetings left (September, November, December) for the Reserve Bank to make any further changes to the official cash rate in 2025.
As always, we aim to provide a clear view of what the RBA is saying, the latest economic data, and how those in power at the big banks are interpreting it.
RBA Governor Michele Bullock noted that inflation “has continued to moderate,” with the June quarter’s trimmed mean inflation falling to 2.7% and headline inflation at 2.1% — both “broadly as expected.” The Board’s updated forecasts assume that underlying inflation will continue to ease “to around the midpoint of the 2–3 per cent range,” with interest rates “assumed to follow a gradual easing path.”
While encouraged by recent data, the Board stressed that “the outlook remains uncertain.” Although there is now “a little more clarity on the scope and scale of US tariffs and policy responses,” global trade tensions are still expected to “have an adverse effect on global economic activity.” The RBA reiterated that these international developments could lead households and businesses to “delay expenditure pending still greater clarity.”
Domestically, private demand is recovering “gradually,” supported by rising real incomes and some easing in financial conditions. Labour market data showed further softening, with unemployment rising to 4.3% in June, as expected. However, the Board noted that “measures of labour underutilisation remain at low rates,” and many employers still face labour shortages.
Despite wage growth easing, “productivity growth has not picked up and growth in unit labour costs remains high,” adding complexity to the inflation outlook. Businesses in some sectors report that “weakness in demand is making it difficult to pass on cost increases,” which could dampen inflation further.
The Board judged that “a further easing of monetary policy was appropriate,” but emphasised it remains “cautious about the outlook.” It concluded by reaffirming its commitment to “price stability and full employment,” stating it “will do what it considers necessary to achieve that outcome.”
Inflation has continued to fall well into the Reserve Bank’s 2–3% target band. Official figures from the Australian Bureau of Statistics show that headline consumer prices rose by 2.1% year‑on‑year in the June quarter, down from 2.4% in March. Meanwhile, the Reserve Bank’s preferred measure — trimmed mean inflation — also eased, falling from 2.9% to 2.7% over the same period.
Inflation will continue to be one of the key metrics the Reserve Bank tracks. The next release of quarterly data will be on September 29, just one day before the Reserve Bank meets.
Just 9% of experts in Finder.com.au’s RBA Survey incorrectly predicted rates would hold at 3.85% at the August meeting.
Shane Oliver, Chief Economist at AMP, said, “Underlying inflation is falling as the RBA expected and is now around the midpoint of its target, the risks to unemployment are shifting to the upside, and monetary policy is still tight, so it makes sense to continue easing.”
Ray White Group Chief Economist Nerida Conisbee says the decision to cut is a “measured response to labour market softening.”
“The decision to cut by 0.25 per cent reflects the RBA's balanced approach to emerging economic uncertainty,” Conisbee said.
“While unemployment has risen from 4.1 per cent to 4.3 per cent, the increase remains relatively modest, suggesting the RBA sees scope for gradual rather than aggressive policy adjustment. The measured pace allows policymakers to assess the impact of each adjustment while maintaining ammunition for more aggressive action if labour market conditions deteriorate further.”
REA Group Senior Economist Eleanor Creagh said that the reduction will provide some relief to borrowers through lower mortgage repayments, and further declines in interest rates are set to bolster both buyer confidence and borrowing capacity, supporting housing demand and price growth.
“While affordability remains severely constrained, the underlying market pressure of persistent housing undersupply relative to population growth remains in place. We expect home prices to continue rising in the months ahead, albeit at a more moderate pace than seen in previous easing cycles.
“With interest rates moving lower this year, momentum in the housing market has strengthened, marking a turnaround from the slower conditions observed in late 2024. Renewed buyer sentiment, supported by earlier rate cuts and the prospect of further reductions, is underpinning this recovery.”
Cotality’s Research Director, Tim Lawless, says the 25bp rate cut will improve borrowing capacity and support confidence, but agreed with Creagh on the challenges of affordability, which are “likely to keep a lid on price growth.”
“The rate cut is a net positive for housing markets, supporting demand through increased borrowing capacity and loan serviceability, and is likely to provide a boost to confidence. Earlier rate cuts have supported a renewed and broad-based positive trend in housing values.”
All four of the Big Four banks anticipated a cash rate cut in July, and they remain unanimous in expecting another reduction in November, bringing the rate to 3.35%.
ANZ expects the cash rate to stay at that level for an “extended period,” while Westpac forecasts additional cuts in February and May, which would push the rate down to 2.85%.
“The RBA’s forecasts are predicated on further cuts to the cash rate as expressed by market pricing last week,” Westpac Chief Economist Luci Ellis says.
“The trough rate implied by this assumption is now sub-3%, consistent with our own view. In the press conference, the Governor did not rule out back-to-back cuts and emphasised that the Board would take things meeting by meeting. The every-other-meeting pace implied by our own recent forecasts still seems a reasonable base case, though.”
NAB also expects the November cut, followed by a further reduction in February.
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