Reserve Bank cuts rates 25bps to 3.6% at August meeting
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More news: Commonwealth Bank has decreased its home loan variable interest rates by 0.25% per annum following the Reserve Bank's interest rate cut today. The changes will be effective 22 August.
Westpac also decreased its home loan variable interest rates by 0.25% and this would be effective 26 August.
The bank will also reduce interest rates for deposit customers. Its Westpac Life total variable rate with bonus interest will decrease by 0.25% to 4.25% and this will be effective 22 August. Its Westpac eSaver total variable rate with a five-month introductory rate will decrease by 0.25% to 4.25% for new customers applying online, effective 22 August.
RBA leaves inflation forecast unchanged despite global tariff war
More news: The RBA expects headline consumer inflation to finally settle at the mid-point of the target band in December 2027, the end of its forecast period, although it retains the same inflation forecasts for every other period, according to the August statement on monetary policy.
The unchanged inflation forecast is in part due to the global tariff situation moving closely with the RBA’s previous forecasts and partly because financial conditions have eased since the May statement, following the cash rate reduction.
Market expectations for the cash rate path have also declined since the May statement, despite a brief retracing after the unexpected rates hold in July, with a 25-basis point reduction fully
In addition, it appears that international financial markets “are placing limited weight on risks to economic activity and inflation” as evidenced by 10-year government bond yields in most advanced economies trading within the same range as in 2023.
Despite higher than expected tariff rates set by the US, the rate of retaliatory tariffs set in response have been lower. Weaker global demand from higher tariffs is also still expected to “exert some downward pressure on global export prices and the prices of goods and services imported to Australia”.
Although the central bank has downgraded its productivity growth assumption from 1% per annum to 0.7% by the end of the forecast period, it is assumed that the economy adjusts quickly with lower demand offsetting lower growth in supply capacity. As such, there is no expected implication for the inflation forecast from this productivity downgrade.
With inflation holding steady, the productivity change is expected has bled into the RBA’s annual GDP growth forecasts, which have been revised down across the forecast period.
Productivity in the very near term is largely unchanged however, with GDP growth forecast to pick-up between June 2025 and December 2026, albeit at a lower level than previously forecast. By December 2027, the growth rate is expected to be at 2%.
Reserve Bank cuts rates 25bps to 3.6% at August meeting
The news: The Reserve Bank's monetary policy setting board has cut the cash rate by 25 basis points to 3.6% at its August meeting. The cut was widely expected by economists and the markets.
The numbers: The cut is the third 25 basis point move in 2025, and the third cut of the cycle, after rates peaked at 4.35%.
The RBA has not increased rates since November 2023 and began the easing cycle in February 2025. The RBA released a set of updated forecasts as part of the new Statement on Monetary Policy alongside its rate decision.
The context: The RBA shocked rate-watchers and wrong-footed the markets in July by keeping interest rates on hold, with governor Michele Bullock revealing the board was not unanimous but overall wanted more data before cutting.
This move was heavily criticised by many economists, particularly given there had been little communication from the central bank to shift perspectives.
The past few weeks have seen the release of labour force data showing unemployment ticking up slightly and the latest quarterly inflation report card, which was welcomed by economists as supporting the case for a cut.
The representations made by RBA officials, including deputy governor Andrew Hauser, since the release of that data have been interpreted as positive.
Bullock will speak to the media at a 3:30PM AEST press conference in Sydney.
What they said: "Today’s policy decision was unanimous," the RBA's statement on monetary policy said.
The sources: Reserve Bank board statement, CBA media release, Westpac media release
