Key Takeaways
- The Reserve Bank of Australia (RBA) has reduced its cash rate target by 25 basis points to 3.60%, aligning with market expectations and marking the third cut this year.
- The RBA downgraded its economic outlook and revised down its trend GDP growth forecast to 2.0% from 2.25%, also lowering consumption projections for 2027.
- Core inflation is still projected to stabilize at 2.5% through 2027, with the RBA anticipating the labor market to reach a balance by the end of 2027.
- The S&P/ASX 200 Index (ASX) held steady after the rate cut, closing 0.2% higher at 8,863.9 points.
The Reserve Bank of Australia (RBA) has moved to ease monetary policy, cutting its official cash rate by 25 basis points to 3.60%. This decision, which was widely anticipated by financial markets, comes as the central bank cites an ongoing decline in underlying inflation and a slight easing in labor market conditions. It marks the third rate reduction by the RBA this year, bringing the cash rate to its lowest point in over 15 months.
Economic Outlook and Growth Projections
Despite the rate cut, the RBA has adopted a more subdued economic outlook, downgrading its long-term "trend" productivity growth assumption from 1% to 0.7% from 2028 onwards. This revision implies lower living standards and incomes for Australians. The central bank also revised its trend GDP growth outlook downwards to 2.0% from a previous estimate of 2.25%, and reduced its GDP growth and consumption projections for 2027. For 2025 alone, GDP is now seen at 1.7%, down from 2.1% in May.
Inflation and Labor Market Dynamics
The RBA's updated forecasts suggest that underlying inflation will continue to moderate, settling around the midpoint of its 2–3% target range. Core inflation is specifically expected to stabilize at 2.5% through 2027. The central bank noted an ongoing moderation in inflation, with trimmed mean inflation falling to 2.7% in the June quarter, well within the RBA's target band.
Regarding the labor market, the RBA indicated that conditions remain a little tight but have eased further in recent months. The unemployment rate rose to 4.3% in June, averaging 4.2% for the quarter. The RBA foresees the economic supply and demand, along with the labor market, reaching a balance by the end of 2027.
Global Uncertainty and Policy Stance
The RBA maintains a cautious stance on the economic outlook amid ongoing uncertainties, particularly concerning global trade developments. While there is improved transparency on US trade measures and global reactions, suggesting a lower probability of severe disruptions, trade policy developments are still expected to have an adverse effect on global economic activity. The RBA stated that monetary policy is positioned to act decisively should international events materially affect Australian activity or inflation. Despite these uncertainties, the RBA reported little discernible effect of global trade uncertainty on Australian economic activity thus far.
The RBA reaffirmed its commitment to price stability and full employment as its core objectives. The unanimous decision by the board to cut rates follows a rare split decision in July, where the RBA surprised markets by holding rates steady.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.