The Australian Central Bank said on Wednesday that monetary policy has been limited in financial distress for many households due to current cash rates, but it cannot rule out further tightening of inflation if necessary.
Pavlo Gonchar | lightrocket | Getty Images
The Australian central bank lowered its benchmark loan interest rate by 25 basis points on Tuesday while reducing the country's annual economic outlook.
The Reserve Bank of Australia lowered its economic growth from 2.1% to 1.7% for the year, saying the weaker growth in public demand in early 2025 is unlikely to be offset for the rest of the year.
The country's benchmark interest rate is now at 3.6%, the lowest since April 2023 and is consistent with Reuters' expectations for economists.
Gary Reserve Bank of Australia said inflation has “sharply declined” since its peak in 2022, with higher interest rates bringing aggregate demand and potential supply “nearly balanced”.
Australia S&P/ASX 200 The equity index grew by about 0.3% after the decision, while Australian dollar Trade with Greenback weakened by 0.15%.
Australia's inflation rate was 2.1% in the second quarter, the lowest level since March 2021, close to the lower end of the RCMP 2%-3%.
Economic growth in the first quarter was poorly effective due to U.S. tariffs, and Tuesday's slowdown was slowed down.
Australia has been hit by 10% tariffs by U.S. President Donald Trump, whose trade minister is reportedly called a “defense” for government negotiations.
The risk of a trade war “very harmful” has been reduced, Gary said, “recent developments in international trade policy have had little significant impact on the Australian economy to date.” However, it warned that more significant damage to global trade cannot be ruled out.
The central bank said lower GDP growth forecasts are more due to lower prospects for productivity growth than trade disruptions.
The country's economy grew 1.3% in the first quarter, down from a 1.5% increase in Reuters poll. On a quarter-quarter basis, the economy grew 0.2%, which is expected to grow 0.4%.
Katherine Keenan, head of the National Accounts ABS, attributed soft growth to shrinking public spending and reducing consumer demand and exports.
Analysts at the Commonwealth Bank of Australia predicted another drop rate in November and saw another possibility in “early 2026”.
Marcel Thieliant, head of capital economics Asia-Pacific, predicts interest rates will drop to 2.85% by mid-2026 based on the reduction in RBA's inflation forecast.