The Reserve Bank of Australia’s (RBA’s) Monetary Policy Board decided to cut the cash rate by 25 basis points to 3.85% today. This decision marks the latest stage of an easing cycle that is expected to continue for some time.

As expected, the Monetary Policy Board noted that underlying inflation has continued to moderate in line with forecasts. Recall, annual measures of headline and trimmed mean inflation fell to within the RBA’s target band of 2% to 3% in the March quarter for the first time since 2021, demonstrating the clear progress that has been made on inflation in Australia. However, consistent with recent messaging from Reserve Bank officials, the Board refrained from providing clear forward guidance on the timing or scale of future rate cuts. 

The progress made on key domestic economic indicators represents a clear signal that further easing of monetary policy is required to support the Australian economy. In addition to inflation falling to within the target band, recent wages data have evolved broadly in line with RBA expectations. This should give the Monetary Policy Board confidence that inflation in Australia is now contained, even with the continued strength of the labour market. Indeed, domestic economic conditions are gradually strengthening, with real wage growth and the robust labour market supporting household spending. However, global risks are rising.

Following the RBA’s April meeting, Deloitte Access Economics emphasised the complexity and uncertainty introduced by recent global economic and geopolitical events. Today, the Board recognised that “uncertainty in the world economy has increased over the past three months”. Volatility in financial markets and uncertainty about the final scope of tariffs in the United States (and policy responses from other countries), are all key risks to the outlook. Discerning the extent to which these uncertainties change expectations for the Australian economic outlook is a key challenge for the RBA at present.

The RBA’s Statement on Monetary Policy (SoMP) – also released on Tuesday – confirms the RBA’s view that Australia is not immune to shifts in global trade policy. The major implications for Australia are likely to be through indirect trade and financial market channels. Notably, a structural slowdown in China could be exacerbated by tariffs. A deterioration of growth in China would weigh on Australian exports. However, it could also mean access to cheaper goods in Australia, and softer inflation. 

The RBA appears to share this sentiment and judged that the risks to inflation have become more balanced while “upside risks appear to have diminished as international developments are expected to weigh on the economy”. That suggests further easing will be required, and Deloitte Access Economics expects a further 50 basis points of cuts during the remainder of 2025.

Today’s cut to interest rates comes less than three weeks after the Albanese Government emphatically secured a second term, with Treasurer Jim Chalmers noting that a focus of the coming three years will “be primarily productivity without forgetting inflation.” The intention to focus on fixing Australia’s lacklustre productivity growth is welcome. To that end, the Productivity Commission’s desire to find ways to boost the return on investment for Australian corporates is exactly the type of approach that is needed. 

This newsletter was distributed on 20^th May 2025. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Tom Harding, Manager at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings:

• Jobs - Wages - Productivity?? (15 May)
• Three more years (07 May)

• Underlying inflation returns to the Reserve Bank’s target range (30 April)

  DAE Business Outlook: A new order of the ages (24 April)