Australia cuts policy rate to 2-year low

Australia lowers policy rate to 3.85%, a two-year low, as inflation worries ease amid global trade uncertainties.

Australia’s central bank has reduced its policy rate by 25 basis points to 3.85%, the lowest in two years, as inflation concerns ease.

The Reserve Bank of Australia stated that risks to inflation have lessened significantly. However, global trade policy uncertainty may still impact the economy.

The RBA anticipates headline inflation will rise in the latter half of 2025 as government subsidies are removed, before stabilising at the middle of the inflation target range.

Australia’s inflation rate recently fell to 2.4%, the lowest level in four years. The RBA’s inflation target is between 2% and 3%.

Slow recovery

Despite this, the central bank warned of a potential slow recovery in household consumption, which may lead to subdued demand and a worsening job market.

Analysts suggest further rate cuts from the RBA may be necessary. Abhijit Surya from Capital Economics believes the central bank has overestimated the negative impact of trade tensions.

The Australian economy showed signs of recovery, with a 1.3% year-on-year GDP growth in the fourth quarter, its first growth since September 2023.

However, analysts still highlight significant risks to the economy due to global trade tensions and domestic uncertainties.

HSBC analysts noted recent tumultuous global economic conditions have had a modest negative impact on Australia, predicting a slightly disinflationary effect.