The number: The Reserve Bank of Australia cut the official cash rate for the second time this year by 25 basis points to 3.85 per cent, as widely expected by the financial market and economists.
The RBA also downgraded its key economic forecasts – it lowered its projections for growth in exports, business investment, and household consumption and slashed its forecasts for US economic activity.
What was said: ”The risk to inflation has become more balanced, the RBA remains cautious about the outlook,” the RBA said in the statement. “It nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply.”
“The board considered a severe downside scenario and noted that monetary policy is well-placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia. The board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.”
Why it matters: The central bank reduced the cash rate in February in what was a line-ball decision after the pace of inflation slowed sufficiently to warrant the first easing in nearly five years. But after holding fire in April, global uncertainty caused by US tariffs has raised concerns about the global outlook and the path of inflation.
What has changed: Domestic inflation finally returned to the RBA’s 2 per cent to 3 per cent target band in the first quarter, but the job markets, a key driver of inflation, remains tight. The US Federal Reserve left the policy on hold after its most recent meeting.
What’s next: RBA governor Michele Bullock will hold a media conference at 3.30pm which is expected to provide more insights into the board’s decision-making.
