Today, the Reserve Bank of Australia (RBA) officially cut its benchmark interest rate by 25 basis points, from 3.85% to 3.60%. This decision has been long awaited by market participants and analysts, as signs that Australia’s inflation is starting to ease and domestic economic activity has yet to show a solid recovery.
In her official statement, Governor Michele Bullock emphasized that this decision was taken to maintain growth momentum and ensure inflation remains contained within the medium-term target of 2-3%. The latest data shows that core inflation (trimmed mean) has fallen to 2.4%, close to the target range, after spiking high last year. On the other hand, household consumption remains weak, and wage growth has been moderate. This has led the RBA to take monetary easing measures as a form of additional support for the economy.
The immediate impact of this decision was felt in the housing sector. With this rate cut, mortgage installments for a A$500,000 loan are expected to fall by around A$76 to A$80 per month. However, on the other hand, lower interest rates also have the potential to push house prices higher, exacerbating affordability issues for new buyers. Data from CoreLogic showed Australian home prices rose 0.4% in June, and on an annualized basis have increased 4.6%.
In addition, this decision also hits savers, especially retirees who rely on deposit interest as a steady source of income. The decline in deposit interest will lower their returns, forcing them to look for more aggressive, yet riskier investment alternatives.
Financial markets responded moderately to the RBA’s move. The Australian dollar was observed to weaken against other major currencies, on expectations that low interest rates will persist for a long time. Market participants are now projecting one more cut in August, and possibly two additional cuts before the end of the year, if inflation remains subdued and domestic demand has not shown significant strengthening.
Going forward, the direction of the RBA’s monetary policy will be highly data-dependent. The main focus remains on inflation, labor market conditions, and household consumption trends. If growth remains weak and prices remain subdued, then the opportunity for further cuts is very open. However, the RBA also remains wary of external risks, including global trade tensions and a slowing Chinese economy that could affect Australian exports.
With today’s decision, the RBA is sending a clear message: it is prepared to act to keep the economy moving, but with an eye on the balance between growth and price stability. For consumers, investors and market participants, it’s time to adjust financial and investment strategies to a low interest rate landscape that may last longer than previously thought.
RBA Decision at a Glance – July 8, 2025
1. 25 basis points cut
The RBA cut its benchmark interest rate by 0.25 percent, from 3.85 % to 3.60 %, in line with broad expectations of economists and markets
2. Reasons behind the cut
– Inflation moderating: Annual CPI at 2.1% and trimmed mean CPI at 2.4%, down from 2.8% and seemingly close to the RBA target (2-3%)
– Household consumption weak; business activity also shows improvement but not yet strong
3. Benefits to borrowers
– Significant mortgage cost reduction: for a A$500,000 loan, the reduction in installments amounts to A$76-80/month, or over A$900/year.
– However, rising property prices (up 0.4% in June-4.6% YoY) may erode these benefits for first-time buyers.
4. Negative impact
– Savers, especially the elderly, face declining returns on deposits.
– If banks do not pass on the full cut to existing customers, the benefits will be smaller.
5. Market reaction
– The market is almost 100% confident of a cut today.
– The Australian dollar weakened sharply against the US dollar in the face of the dovish decision and possible global tariff risks