Australia’s interest rate falls to lowest since April 2023

August 12, 2025 (MLN): Australia’s central bank cut its benchmark lending rate by 25 basis points on Tuesday, lowering it to 3.6%, the lowest level since April 2023.

The Reserve Bank of Australia (RBA) also downgraded its annual economic growth forecast to 1.7% from 2.1%, citing weaker-than-expected public demand in early 2025 unlikely to be offset later in the year.

The RBA noted that inflation had dropped substantially since its 2022 peak, with steeper interest rates bringing aggregate demand and potential supply closer to balance, as CNBC reported.

Inflation in Australia was recorded at 2.1% in the second quarter, the lowest since March 2021 and near the RBA’s target range of 2% to 3%.

Following the rate cut, Australia’s S&P/ASX 200 equity index rose about 0.3%, while the Australian dollar weakened 0.15% to 0.6501 against the U.S. dollar.

The rate cut comes amid a reshaped trade environment, with U.S. tariffs impacting Australia.

The country was hit by a baseline 10% tariff imposed by U.S. President Donald Trump, which Australia’s trade minister described as a “vindication” of the government’s trade negotiations.

The RBA said the risk of a “very damaging” trade war has diminished and that recent international trade policy developments have had little discernible impact on Australia’s economy so far.

However, the bank warned that a more significant disruption to global trade cannot be ruled out.

The lowered GDP growth forecast is attributed mainly to weaker productivity growth rather than trade disruptions.

Australia’s economy grew 1.3% year-on-year in the first quarter, below the 1.5% estimate.

Quarter-on-quarter growth was 0.2%, undershooting expectations of 0.4%.

Katherine Keenan, head of national accounts at the Australian Bureau of Statistics, linked the soft growth to shrinking public spending and weakened consumer demand and exports.

Analysts at the Commonwealth Bank of Australia predict another rate cut in November, with the possibility of an additional cut in early 2026.

Marcel Thieliant, head of Asia-Pacific at Capital Economics, forecasts rates to decline to 2.85% by mid-2026, reflecting the RBA’s reduced inflation outlook.

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