The central bank of Australia on August 12, 2025, decided on an interest rate cut in Australia by almost a quarter percentage point for the third time in 2025 to 3.6%, with inflation getting tamed as well as economic growth stalling.
The Reserve Bank of Australia went on to decrease its cash rate from 3.85%. The rate was cut from 4.1% that was prevalent in May 2025. The reduction from 4.35% at the February board meeting was the first rate cut of Australia since October 2020. This new rate happens to be the lowest since March 2023, and the cut was majorly anticipated as the inflation consistently falls.
According to Michele Bullock, the bank’s governor, international trade policy developments were anticipated to have an adverse effect when it comes to global economic activity. He added in a statement that the uncertainty surrounding the world economy remains elevated.
At present, there is a little more clarity when it comes to the scope as well as the scale of US tariff and policy responses from certain other countries, thereby suggesting that more extreme outcomes are likely to get avoided.
The bank has gone on to adjust the interest rates so as to steer inflation towards a target band of almost somewhere between 2% and 3%. In May 2025, inflation dipped to 2.1% from 2.4%, which was a month earlier.
The trimmed mean, a gauge of underlying inflation that is a preferred measure from the bank, fell from 2.8% in April 2025 to 2.4%.
Apparently, the inflation has gradually declined since the time it peaked in the last quarter of 2022 at 7.8%.
It is well to be noted that the Bank was widely expected to slash the rate at its last board meeting in July 2025. However, the directors voted 6-to-3 to wait to see the inflation data coming from the June quarter.
The data went on to reveal that the trimmed mean inflation was 2.7% within the three months leading to June, which was down from 2.9% till the March quarter.
Interestingly, the board’s decision on interest rate cut in Australia on August 12, 2025, was unanimous.
Jim Chalmers, the treasurer, said that curbing inflation so that it comes within the target range had given the central bank the confidence so as to slash the interest rates three times in the last six months.
He told the reporters that this is indeed a very welcome relief for millions of Australians, and it will put more money in the pockets of people who already happen to be under pressure.
Notably, this economic boost of a rate cut comes after the growth slowed to a very sluggish 0.2% in the three months leading to March and 1.3% for the entire year. The economy grew at 0.6% in the preceding quarter leading to December 2024.
It is worth noting that the bank has attempted to gradually control the inflation by way of making sure not to tip the economy into recession or cause any kind of large-scale job losses.
Apparently, the unemployment grew to 4.3% in June 2025 from 4.1%, which had been a pretty steady figure since February 2025. The jobless rate happens to be at 4% in January 2025.