The Reserve Bank of Australia (RBA) has lowered its cash rate to 3.85%. This is the lowest it has been in two years.
This comes after it started lifting interest rates in 2022 to combat high inflation (rising prices).
However, the RBA noted in its decision today that the rate of inflation has now “fallen substantially since the peak” and “continues to ease”.
Interest rates
The cash rate is what the RBA charges banks for short-term loans.
We usually refer to changes in the cash rate as the RBA changing interest rates, because the cash rate affects interest rates across the economy, including home loans. The higher the interest rate, the more expensive it is to borrow money (like having a mortgage).
The cash rate had been at 4.35% since November 2023 – its highest level in over a decade – before being cut to 4.1% in February this year.
Today
The RBA board opted to cut interest rates from 4.1% to 3.85%. This is the lowest since May 2023.
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The RBA partly bases its decisions on underlying inflation, which measures the rate of price growth once you remove extremes on either side (such as a sudden fall in energy prices).
The RBA’s target range for underlying inflation is 2-3%. The latest data from the Australian Bureau of Statistics showed underlying inflation was at 2.9% in March.
This was the first time since 2021 that underlying inflation was within the RBA’s target range.
The next RBA decision will be handed down on 8 July.
Economic future
The RBA said in its statement that “uncertainty in the world economy has increased over the past three months”.
It added that the recent tariff announcements made by U.S. President Donald Trump have caused “considerable uncertainty” and that “geopolitical uncertainties also remain pronounced”.
It said it will continue to pay close attention to the global economy.
