The Reserve Bank of Australia cut interest rates by 25 basis points to 3.85% at its May meeting, marking the second reduction this year and bringing borrowing costs to their lowest level since May 2023. The widely anticipated move comes as inflation continues to ease faster than expected, giving policymakers room to support economic growth. The central bank emphasized that future rate decisions will remain data-dependent, with particular attention to employment figures and global economic developments.
While the rate cut was in line with market expectations, it reinforces the RBA’s shift toward a more accommodative policy stance amid softening domestic demand. Recent economic indicators show consumer spending slowing and business investment weakening, prompting the central bank to act. However, officials cautioned against assuming an aggressive easing cycle, noting they will carefully assess incoming data before making further moves.
The Australian dollar initially weakened following the decision but found some support as traders digested the RBA’s cautious tone. Market pricing now suggests at least one more rate cut is likely this year, though the timing remains uncertain. Economists will closely watch upcoming labor market and inflation reports to gauge whether the central bank might accelerate or pause its easing cycle in the coming months.
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