Australia Cuts Interest Rates to 2-Year Low, Downgrades 2025 Economic Growth Forecast

RBA Lowers Benchmark Rate to 3.6%

The Reserve Bank of Australia (RBA) has reduced its benchmark interest rate by 25 basis points, bringing it down to 3.6% — the lowest level since April 2023. The move aligns with market expectations and reflects the central bank’s strategy to support economic activity amid slowing growth.

GDP Growth Outlook Trimmed to 1.7%

Alongside the rate cut, the RBA downgraded its 2025 GDP growth forecast to 1.7%, down from the previous 2.1% estimate. The revision follows weaker-than-expected public demand in early 2025, which policymakers say is unlikely to rebound significantly later in the year.

Inflation Near Target Range

Australia’s second-quarter inflation rate fell to 2.1%, its lowest since March 2021, placing it near the bottom of the RBA’s 2%-3% target range. The bank credited tighter monetary policy with balancing supply and demand, easing the price pressures seen during the 2022 inflation peak.

Market Reaction and Currency Movement

Following the announcement, the S&P/ASX 200 index rose 0.3%, while the Australian dollar slipped 0.15% to 0.6501 USD. Analysts say the market’s response indicates investor confidence in further policy easing later in the year.

Global Trade Conditions a Secondary Factor

The RBA noted that recent U.S. trade policy changes — including a baseline 10% tariff under President Donald Trump — have had minimal impact on Australia’s domestic economy. However, the bank warned that the possibility of “major global disruptions” remains.

Economic Performance Below Expectations

According to the Australian Bureau of Statistics, GDP grew just 1.3% year-on-year in Q1 2025, missing the 1.5% forecast, while quarterly growth was 0.2%, below the expected 0.4%. Weaker productivity, softer consumer spending, reduced public expenditure, and lower exports were cited as the main drags on performance.

Further Rate Cuts Likely

Economists from the Commonwealth Bank of Australia anticipate another rate cut in November 2025, with a possible additional reduction in early 2026. Capital Economics projects the benchmark rate could fall to 2.85% by mid-2026, supported by a more subdued inflation outlook.

Australia cuts interest rates to 3.6%, lowest since April 2023

Reserve Bank of Australia lowers GDP growth forecast to 1.7% for 2025

Inflation drops to 2.1%, near bottom of RBA target range

Weak public demand and productivity drive slower economic outlook

Australian economy grows 1.3% year-on-year in Q1, below expectations

S&P/ASX 200 rises 0.3% after rate cut decision

Australian dollar weakens 0.15% to 0.6501 against USD

RBA sees reduced trade war risks but warns of possible global disruptions

Analysts forecast additional rate cuts in November and early 2026

Capital Economics predicts rates could fall to 2.85% by mid-2026



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