The Reserve Bank of Australia lowered its main policy rate, the cash rate, by 25 basis points from 3.85 percent to 3.60 percent at its meeting today, in line with the consensus forecast. This rate was left on hold at the RBA's previous meeting in July after it was cut in April. The rate decision coincided with the publication of updated economic forecasts in the quarterly Statement on Monetary Policy.

In the statement accompanying today's decision, officials pointed to recent declines in inflation and noted updated staff forecasts indicating that underlying inflation will continue to moderate to around the midpoint of the target range of two percent to three percent. Despite ongoing tightness in the labour market, officials noted that uncertainty over global trade tensions represent a risk to household and business spending.

Reflecting these considerations, officials concluded that a rate cut was warranted today but they also stressed that the remain cautious about the outlook. They again noted that monetary policy is well placed for them to respond decisively if external factors weigh on domestic economic conditions.

Today's decision that a rate cut is warranted reflects the fact that officials remain confident about the inflation outlook. Headline inflation is still forecast to be 3.0 percent at end-2025 and 3.1 percent at mid-2026, with the end-2026 forecast revised up slightly from 2.8 percent to 2.9 percent. The forecast for the trimmed mean measure of inflation at end-2026 remains unchanged at 2.6 percent. Both measures of inflation are forecast to be at 2.5 percent mid-2027, down from 2.6 percent previously.

Officials have also revised down their growth forecasts. Australia's economy is now forecast to expand by 1.7 percent on the year in the three months to December 2025, down from 2.1 percent previously, and by 2.1 percent in the three months to December 2026, down from 2.2 percent previously.

The 25 basis point rate cut to 3.60 percent that forecasters were expecting last time will finally appear at this meeting as inflation continues to cool.

The Reserve bank of Australia (RBA) announces its monetary policy with regard to interest rates on the first Tuesday of each month with the exception of January when it is on vacation. The RBA is the central bank of Australia and its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system.

The Reserve Bank of Australia's (RBA's) main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board with the objective of achieving low and stable inflation over the medium term. Other responsibilities include maintaining financial system stability, while at the same time promoting the safety and efficiency of the payments system. The RBA regards appropriate monetary policy as a major factor contributing to the Australian dollar's stability, which in turn leads to full employment and the economic prosperity for Australia.

The RBA is unique among the central banks - it has two boards with complementary responsibilities. The Reserve Bank Board is responsible for monetary policy and overall financial system stability. The Payments System Board has specific responsibility for the safety and efficiency of the payments system.

The RBA sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.