By ABC News business reporter Stephanie Chalmers
Australia's Reserve Bank Governor Michele Bullock speaks during the Monetary Policy Decision media conference in Sydney. Photo: AFP / DAVID GRAY
The Reserve Bank of Australia has delivered its third interest rate cut of 2025, with a 0.25 percentage point reduction at its August board meeting.
That takes the cash rate to 3.6 percent for the first time since April 2023.
The move had been overwhelmingly anticipated by financial markets and economists after the surprise decision to hold rates steady in July.
It was a unanimous decision by board, which had been divided last month.
Tuesday's cut follows a further easing of inflation in the June quarter, which RBA governor Michele Bullock last month highlighted as the crucial piece of data the monetary policy board was waiting for.
"Updated staff forecasts for the August meeting suggest that underlying inflation will continue to moderate to around the midpoint of the 2-3 percent range, with the cash rate assumed to follow a gradual easing path," the post-meeting statement read.
The inflation pull back, alongside "labour market conditions easing slightly, as expected", led the board to deem "further easing of monetary policy was appropriate".
"This takes the decline in the cash rate since the beginning of the year to 75 basis points," the RBA board noted in its statement.
The central bank cut interest rates at its February and May board meetings.
Before that, the RBA's cash rate had sat at 4.35 per cent since November 2023, after a series of 13 rate hikes, beginning in May 2022.
Cash rate at 3.6pc, further rate cuts expected
The Australian dollar fell following the decision, dipping just below 65 US cents as Ms Bullock addressed a media conference in Sydney.
The RBA governor indicated the board was prepared to cut interest rates further if necessary.
"The forecasts imply that the cash rate might need to be a bit lower than it is today to keep inflation low and stable, and employment growing, but there is still a lot of uncertainty," Ms Bullock told reporters.
"The board will continue to focus on the data to guide its policy response."
Betashares chief economist David Bassanese has forecast further interest rate cuts, with the next easing more likely in November, rather than at the next meeting in September.
"Indeed, the [central] bank's own forecasts of underlying inflation stabilising at 2.6 percent over coming quarters incorporate further declines in the cash rate in line with current market expectations," he wrote.
"That said, barring a major growth scare, the RBA does not seem in any rush to cut interest rates.
"All up, my base case remains that a rate cut on Melbourne Cup day is an odds on favourite - following release of the June quarter consumer price index report in late October."
The governor would not be drawn on what specific cash rate the central bank considers to be "neutral" - that is, the level where the rate is not stimulating or putting a handbrake on the economy.
Instead, she gave a "very wide range" of between 1 and 4 percent, and noted a neutral rate is for when there is an absence of economic shocks.
"We are very often not in the absence of shocks… we've got shocks, particularly at the moment."
- ABC
